Editor's note: This is the first of a four-part series on the development of the mainland property market in the light of increasing government measures to combat excessive speculation and to stabilize prices. The next instalment will examine the impact these measures are having on developers. This story was written by Wang Zhenghua in Shanghai based on his own reporting in the city, and Hu Yuanyuan in Beijing, Chen Hong in Shenzhen and Li Wenfang in Guangzhou.

Escalating government measures to cool off the property markets in many mainland cities are forcing banks to re-assess what has been one of their most profitable businesses  mortgage loans.

This is creating a dilemma for many banks. Concerned government officials have pointed to, among other things, the potential risk for lenders in a liquidity-driven property boom, which can turn to bust when the cost of capital, or opportunity cost, begins to swing in the other direction. But many bankers, who have no doubt been aware of such risks for quite some time, have been reluctant to take the initiative in curtailing their mortgage lending business because doing so could make an immediate and considerable dent in their performance.

Confronted by the government's show of resolve in its latest measures introduced last month, banks are running out of excuses to continue dragging their feet. Some of the larger city banks that have been most active in the mortgage lending market, which provides the major impetus for profit growth, are taking steps to tighten their loan policies.

Most of these measures introduced by the banks are seen to be minor adjustments, which will be unlikely to result in any appreciable tightening of credit. But taken together, they represent a fundamental departure in the lending policies pursued by banks since the property boom began to take off several years ago.

More important, perhaps, is the fact these initiatives from the banks could themselves dampen the speculation widely considered to have contributed greatly to the surge in property prices in some cities, taking them to levels that fewer and fewer people can afford. Rampant speculation poses the greatest risk to the stability of the property market because highly leveraged speculators could be forced to unload their purchases in a stampede at the first sign of a price reversal.

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