Zhoushan denies reports of looser housing controls

"The city built a lot of residential projects over the last few years, which put the local government under pressure to find ways to digest the housing inventory," said Hui Jianqiang, research director of Beijing Zhongfang-yanxie Technology Service Ltd.

According to Hui, there's a rising market expectation for the removal of the harsh curbs on home purchases.

Li Tie, director of the China Center for Urban Development of the National Development and Reform Commission, said that authorities should reduce administrative regulations on the property market, which have increased homebuyers' difficulties in getting mortgage loans, but failed to curb price rises.

"To combat property speculation we should rely on the market," Li said. "And the government should tolerate mild increases in housing prices."

Meanwhile, if Zhoushan does loosen property curbs, other local governments might follow the move, Hui added.

But Song Huiyong, director of the research and consultation department at property consultancy Shanghai Centaline, believes that Zhoushan's planned policy would go too far, if implemented.

"By encouraging families to buy new property, this policy would go against the central government's spirit of taming speculation," said Song.

Heated land auctions are spreading from first-tier cities such as Beijing and Shanghai to second-tier cities, and local land auction records are being broken at a faster pace.

In early September, a residential land parcel located near Beijing's East Third Ring Road was bought by Sunac China Holdings Ltd for 73,100 yuan ($11,880) per square meter of buildable space, becoming the nation's most expensive land in sq m terms.

Wei Tian in Shanghai contributed to this story.