China is brewing a pilot project to allow property developers to raise fund through investment trusts, a move to ease credit crunch pressure on the real estate market hit by a slowing down economy.

A Chinese senior official said the Real Estate Investment Trust (REIT) would help to expand the credit lifelines for developers, who until now depended primarily on commercial banks for funding.

Huo Yingli, deputy director of financial market department, People's Bank of China, told a press conference on Tuesday that the central bank had formulated a REIT scheme, which was pending further deliberations with related ministries and government agencies to fine tune the proposal.

Huo said the proposed scheme would soon be submitted to the State Council, China's cabinet, for consideration.

He added to avert distrust against structured financial products that were blamed for triggering the US financial crisis, the proposed REIT scheme would emphasize on risk prevention, sound monitoring and control mechanism.

The REIT, originated in the U.S. in the 1960s, has been introduced in many countries, including Australia, Germany, Singapore and Hong Kong over the past decades. It securitizes property projects into traded units and sells to investors.

The Tuesday press conference was held to explain the government's efforts in promoting a healthy growth for the real estate market, which had been hit by the global credit crunch and reduced demand.

China's central bank data showed that by the end of November, the loan balance recorded by the real estate industry reached 5.24 trillion yuan, its growth rate was 20.6% lower than the same period last year.

While credit tightened, demand for commercial housing too weakened.

For the first 11 months of last year, the total floor areas sold for commercial housing stood at 490 million square meters, or an 18.3% decline year-on-year. Sales revenue too dropped 19.8% to 1.9 trillion yuan for the same period, according to China's National Bureau of Statistics.

To counter the gloomy market outlook, many property developers across the country had started slashing prices to attract more house buyers, who in turn remain prudent and many held back consumption, partly due to economic uncertainties and partly due to expectation for the once skyrocketing property prices to drop further.

Such consumer sentiment was reflected in declining demand for housing loan. According to the central bank, the individual housing loan balance by the end of November last year registered a year-on-year increase of 10.6%, but that was 25.8% lower than the same period in 2007.

Chinese policymakers hoped that the latest proposed REIT scheme would boost the slipping real estate market and aid developers to soldier on as the economy was expected to worsen.

Japan had done the same in the 1990s after the burst of its real estate bubble.

(EO interns Li Jing and Li Jia also contributed to the article)