A report by Chinese Academy of Social Sciences (CASS) says that China's home buyers are paying an increasingly large monthly mortgage loans, with some middle-income earners giving away over 50 percent of their earnings, which is at "an alarming level".

An advertisement is seen during a housing fair in Shanghai, November 19, 2006. [newsphoto/file]

The conclusion was drawn by CASS researchers via an extensive survey and close contacts with government bodies and real estate developers in a number of cities, including Shanghai, Beijing, Shenzhen, which boast the highest housing prices as well as the largest price hikes in China.

"With the interest rate further raised, those who cannot afford a house will find it even more so." said the report.

Ever since the housing system reform began in 1999, housing prices have seen continuous hikes throughout the country, imposing a growing burden on home purchasers.

Take a 30-year mortgage on a yearly interest rate of 5.3% for example, a home buyer, after a down payment of 30 percent of the total house fund, will have to pay over 50 percent of his total earning for the housing loan.

This, according to the report, has something to do with the fast economic growth the country has maintained since 2003, and the inadequate housing supply, which falls far short of market demand.

The CASS report also pointed out that house prices will be pushed up if the housing supply continues to outstrip demand and the government continues to enhance house prices by selling land to property developers.

The government policies will make "those who cannot afford a house will find the house even more unaffordable", especially after the interest rate increases, the report said.

"The impacts of interest rate raise vary in different regions, with Beijng, Shanghai, and Guangzhou more likely to bear the brunt. With time goes by, the middle class in Beijing will find buying a house increasingly difficult." said Wang Lina, one the researchers carrying out the survey.

In fact, the market for real estate loans has shown signs of shrinking. In 2004, the growth of personal loans accounted for 50 percent of the total property sales, as opposed to 15% in 2005 and 10% in 2006.

Wang said this is related to frequent interest rate raises, which have caused the high-income earners to return the loan in advance, while leaving the low-and-middle income earners short of loan capacity.

A drop in yearly loan interest rate to three percent will greatly improve the families' financial solvency, she warned.

The current yearly interest rate stands at 7.11 percent for loans of five years or above.