China's banking regulator told lenders last month to conduct a new round of stress tests to gauge the implications of residential property prices falling as much as 60% in the hardest-hit markets, a person with knowledge of the matter said.

Banks were instructed to include worst-case scenarios of prices dropping 50-60% in cities where they have risen excessively, the person said, asking not to be identified. Stress tests carried out in the past year figured in home-price declines of as much as 30%.

The tougher assumption may underscore concerns that last year's record $1.4 trillion of new loans fueled a property bubble that could lead to a surge in delinquent debts. Regulators have tightened real-estate lending and cracked down on speculation since mid-April, after residential real estate prices soared 68% in the first quarter from a year earlier, according to estimates from Knight Frank LLP, the London-based property adviser.

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