Chinese authorities' use of targeted stimulus measures deepened risks in the housing market, according to Societe Generale.
Analysts have grown increasingly concerned about the impact of declining house prices on China's economy, especially as property represents 30 percent of the overall economy.
"Such a selective policy approach is hardly good news to the housing sector," said Societe Generale in a note published on Thursday, referring to the government's mini stimulus moves.
"There is no room for complacency when it comes to housing sector risk," they added.
So far stimulus has targeted weaker areas of the economy - a stark contrast to the far-reaching policies of 2008-2009, which critics argue contributed to excessive credit growth.
However, because recent measures were smaller and more selective, they stabilized credit growth rather than boosting it and the housing market is suffering as a result, SocGen said.
"The housing sector downturn, as suggested by very recent price data, is deepening further and very likely to be protracted, in the absence of another credit boom," the analysts said.
Earlier this week, an independent survey by private data provider Soufun showed house prices in 100 major Chinese cities fell 0.5 percent on month in June, the second consecutive month of declines.
The survey also showed that new apartments offered deeper discounts, as developers are eager to boost sales in order to liquidate inventories - a worrying sign for future housing construction and investment.
SocGen acknowledged that the stimulus moves boosted growth prospects, however, especially infrastructure spending. It now sees the economy growing 7.5 percent in the second quarter, up from its previous forecast of 7.1 percent, and in line with the government's annual target. But the bank warned that higher infrastructure spending is not entirely positive as it detracts cash from the housing market, exacerbating risks there.
"This lift in short-term growth does not mean lower risk going forward. Surging infrastructure investment growth with steady total credit growth means that the funding for other sectors, especially housing, continues to dwindle," they added.