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Chinese home buyers play the waiting game

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33-year old Chinese resident Lin owns and lives in a one-bedroom apartment in Beijing with his wife.

Both are eager to upgrade to a bigger place to accommodate plans to have a baby, but they have been reluctant to take the plunge despite a fall in Beijing property prices.

"I think there's a big chance for house prices to go down even further, probably 10 to 20 percent," he said. "Few people are giving offers right now. My friends and I are all waiting."

Read MoreAre China'sproperty vacancies a danger sign?

Lin is hoping to avoid the fate of 30-year Deng and her sister. Both bought apartments in Chengdu's suburb earlier this year, only to see prices dropping nearly 20 percent since.

"We both deeply regret the purchases," said Deng. "My sister and I are both migrants to Chengdu from the rural area. It is not easy for us to work for living and save money in the city. Now we are paying way too much."

Buyers' resistance against entering China's real estate market reflects wider fears of a looming housing bust, which many analysts have singled out as the biggest macro risk the economy currently faces.

Read MoreHere's the biggest macro risk China faces

After skyrocketing in recent years, China's property prices are falling, as government-imposed restrictions took the wind out of the frothy market. But there are now concerns a dramatic correction could trigger a hard landing in the housing market, which is estimated to contribute 15 percent of China's economy.

China's new home prices fell for a second month in June, according to data released by the National Bureau of Statistics (NBS) which tracks 70 Chinese cities. Figures for July are due next Monday and they aren't likely to be pretty.

A survey by China Real Estate Index System showed average housing prices fell for a third month in a row in July. Analysts blame it on the massive supply overhang.

Du Jin Song, Credit Suisse's regional head of property research, says Chinese home buyers are right to wait. He believes that prices will continue to fall, though he declined to forecast the pace of the drop.

Read MoreWhy Chinaproperty isn't facing Armageddon

Du suggests it makes more sense for home-seekers to rent, rather than buy, right now. "Rental yields come in between 1 and 2 per cent, while mortgage rates are about 6 to 7 per cent, so (in the short-term), renters may get the better end of the deal," he said.

Not everyone's as downbeat. Peter Churchouse, founder of Portwood Capital, believes China's house price declines are bottoming out and could normalize in the fourth quarter, as some states roll back housing curbs.

Beijing recently moved to encourage the top Chinese banks to step-up lending, especially to lower-income and first-time home buyers. State media have also reported of some 37 of 46 cities that previously imposed market cooling measures loosening some or most of their restrictions.

Read MoreIs China property done dirt cheap?

Even top-tier cities like Beijing and Shenzhen are said to be considering moves to relax rules on mass residential properties, which may include tax rebates and lower down-payment ratio of mortgage loans for second-home purchases.

"We are probably going to see a couple more month-on-month declines, but I believe that policies to support the property sector are working, and we are at the cusp of a turnaround," Churchouse said.

Alvin Wong, property analyst at Barclays, says any policy easing by first-tier cities would be significant, and would send a positive signal to the market. He adds that September is the crucial month to watch, as August is usually a slack season for new developer launches.

Regardless, should the sector see a protracted slowdown, analysts believe the government will step in with support measures. Portwood Capital's Churchouse says Beijing would likely retaliate with targeted easing in such a scenario.

– CNBC's Qian Chen contributed to this report.

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.