At a press briefing Thursday, Wang Shengbang, a deputy director at the China Banking Regulatory Commission, said the surge in real-estate loans, which was triggered by a homebuying frenzy in many Chinese cities in recent months, has both “positive and negative sides.”

While the increased leverage has helped reduce housing inventory in some cities, it represents “new challenges” to the regulator in its efforts to safeguard the financial system, Mr. Wang said.

So far, the banking regulator has seen “limited, direct impact” on banks from the sharp increases, Mr. Wang said, saying that loan-to-value ratios in mortgage debt in China remain relatively low.

From January through August, property loans made up about 40% of new loans issued by Chinese banks, the regulator said. Mortgages represent about two-thirds of real-estate loans. 

On average, the value of mortgage loans in China accounts for 55% of the underlying properties’ value, Mr. Wang said.

The lower that number, the stronger the cushion that banks have against drops in property prices.

Meanwhile, another positive Mr. Wang noted is that monthly payments made by borrowers holding more than 90% of the mortgages represent less than 50% of their monthly incomes.

“There’re challenges” from the rapid rise in property loans, Mr. Wang said. “But there’s no need to worry too much from a financial-stability perspective.”