China’s immense property market for its 1.35 billion citizens presents unique challenges and risks, RBC Wealth Management has said in a report setting out key fears it has about the sector and the consequence of any crash.

Concerns about Chinese real estate include those of “ghost towns”; speculation and investment; the banking sector, “shadow banking”; and criminal activity, the Canadian firm said in a report. On the positive side, the report said Chinese authorities have taken some steps to deal with some, if not all, of these risks.

The country’s population growth – from 540 million in 1949 at the time of the Communist takeover – as well as major trends such as a move towards and industrialised economy, are long-term drivers of the market. As at the end of 2012, 52 per cent of the population live in cities.

But while the report did not strike a gloomy tone, it set out a list of risks with which it says policymakers must wrestle with. “Concerns about the outlook for the property market, including whether prices are excessive, whether supply is excessive, the extent of speculation, the impact of corruption, the important of the housing market to local government financing, the potential impact of a pronounced housing downturn on banks, what a downturn in housing would mean for Chinese growth, and the influence of the property market on the equity market. The list goes on,” the report said.

Among concerns are those of “ghost towns”, raised by pictures of empty buildings and even entire towns without residents, prompting fears of malinvestment. RBC Wealth Management cautioned, however, that such projects are either “failed anomalies or works in progress”. The problems are either the result of poor planning or failings resulting from state central planning.

“One logical point to think about is if housing supply across China was indeed so ridiculously excessive, one would have expected an impact on prices by now, especially as the government has tightened the policy screws over the past several years. The issue of ghost towns has been around for quite a while. Generally, though, prices at the national level have remained steady over the past couple of years,” the report said.

Far more serious, the report said, is the fact of speculative investment activity, which it said is widespread. Elsewhere, the report said fears that a property market decline would hit the banking sector might be overblown. Unlike the situation in the US when rising property loan defaults hit banks, Chinese banks have had stricter rules on down payments on loans.

Among other risks cited is what the report called the shadow banking system, a network of unorthodox lending channels that have boomed in recent years. The term does not imply such operations are secretive or illegal, since firms in this category include the trust sector and banks engaging in off-balance sheet lending. The RBC Wealth Management report estimated that the Chinese shadow banking market is worth more than RMB20 trillion ($3.2 trillion).

Chinese policymakers have sought to curb excesses such as through price stabilisation; increased supply of affordable housing, and curbs on speculation. Measures to cool the market have included curbs on how much property a person can buy, as well as a 20 per cent capital gains tax levy on a property sold within five years.