China’s housing market hasn’t yet turned into a full-blown real estate bubble, but the government needs to work to limit further price increases or face that risk, an executive with a leading property research company said.

“We’re only 20% of the way” to a full-blown bubble, said Robert Fong, director of international product and business development at Nasdaq-listed, Shanghai-based real estate consultancy China Real Estate Information. “ There is still time to head off that kind of a situation.”

“What really is the key factor going forward is that the rate of increase of housing prices needs to be capped,” Fong said during a discussion at a meeting of the Shanghai Foreign Correspondents Club last Thursday.

Worries that rising real estate prices in China would lead to even stiffer government actions to slow the industry have hurt stocks among real estate developers this year. Real estate prices in China rose 9.3% in August from a year earlier, according to a government survey of 70 leading cities. Although prices were still on the rise, it was the fourth consecutive decline in the year-on-year rate of increase from a near five-year high of 12.8% in April.

Fong, who has worked in Greater China’s property industry for a decade and a half, said China’s current situation is comparable to Hong Kong’s big bubble in 1997 in the sense that ”prices are getting frothy, and people’s risk perception toward real estate as an asset class is that it is a no-loose asset class.” Yet China lacks the frenzy that Hong Kong had in that era, he said.

So far, Fong said, China’s government “has done a very good job of controlling credit. They loosened in 2009, to prevent the overall economy from stalling. It gave the real estate sector an extra little bit of kick. Apart of that, in the first half of 2010, they have gradually pulled back, ” he said.

With prices continuing to increase this year and inflation rising nationally, authorities need vigilance, however. ”As long as we cap the rate of increase in prices to allow incomes to catch up and allow other factors to even out, I think we’re okay,” he said. China’s monetary policy officials could, for instance, allow interest rates to rise, he said.

Yet the market may also be moving on its own to cool itself down. An increase in the supply of new projects from developers in the second half compared with the first will lead to price cuts that stimulate sales and take some of the steam out of the market, he predicted.