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China banks on first-time buyers to prop up housing

Jiang Lu is the proud owner of a 450 square foot apartment in the Chinese capital of Beijing. The 28-year-old web editor invested her entire life savings and took advantage of easier mortgages in China to buy her new 250,000 dollar home.

"It is very easy to get a mortgage. Any bank will give one to you," she said. "Without one, I wouldn't even think about buying."

Jiang is one of the first time buyers Chinese authorities hope will help prop up China's flagging property market.

Read MoreChinese home buyers play the waiting game

In Beijing and many other cities across China, the housing market is starting to weaken.

New home prices dropped in July for the third month in a row with 64 out of 70 cities surveyed showing month-on-month declines. Based on data from the National Bureau of Statistics on Monday, the average price of new homes slid 0.9 percent from June, slipping faster than June's 0.5 percent drop.

"The acceleration in home price declines is probably due to more projects offering discounts and slower sales in July," Bank of America Merrill Lynch analysts said in a research note.

Read MoreIs China property done dirt cheap?

Housing sales in China have dropped this year in total value by 10.5 percent compared to last year, according to official data.

At a property trade fair in Beijing, China
Getty Images
At a property trade fair in Beijing, China

China's home prices have been skyrocketing for years, with the government encouraging development and offering few other ways for regular citizens to invest their cash. Concerned that prices were becoming out of reach for average citizens, policymakers began to put in restrictions in 2010 to stop speculators.

After several false starts, the market appears to be cooling finally but there are now fears the market could fall too fast and trigger a hard landing.

Read MoreChina property stocks jump on hopes curbs will be relaxed

With property so important to China's growth, accounting for an estimated 20-percent of GDP, some economists worry about the impact a housing downturn could have on China's economy and the rest of the world. The country's real estate market drives global growth with construction fueling prices in commodities.Louis Kuijs, chief China economist with RBS, believes China will step in with further policies to prevent any dramatic correction.

"As we expected, several cities in the last two months eased restrictions on housing purchases," Kuijs writes in a research note. "In the coming months, we expect more policy initiatives in that direction, given the key role of real estate in the economy, the subdued overall economic outlook in H2 2014, and the determination of senior leaders to meet the overall GDP growth target of 7.5 percent."

Read MoreSmall Chinese cities steer away from GDP

Beijing recently moved to encourage big banks to step-up lending,especially to lower-income and first-time home buyers. Local authorities are also putting in measures such as tax rebates, encouraging potential buyers like Jiang to invest despite falling prices.

"Sure, there are risks involved," she said. "But I'm a risk-taker so I just close my eyes and march ahead."

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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.

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