Amid the rising risk of defaults, an index that tracks the price movement of high-yield Chinese real estate dollar bonds slumped by 39 percent from the start of September to Nov 9 at 219.4 points, the lowest level in more than eight years, according to Bloomberg. The index is calculated by IHS Markit division iBoxx.

The index has since staged a rebound, rising by 20 percent to 263.6 points on Nov 19, as positive policy signals have come in successively and indicated a slight loosening of the real estate financing policy and continuation of the nation's commitment to fend off any systemic financial risks, experts said.

The People's Bank of China－the central bank－and the China Banking and Insurance Regulatory Commission have reiterated the policy stance of maintaining the healthy development of the property sector on different occasions since late September and have instructed banks to maintain steady and orderly lending to the real estate sector.

National-level regulators, self-regulating bodies and think tanks have organized as many as four symposiums with developers in the month leading up to mid-November about addressing their business stress, which experts said has rarely happened, leading to the release of more easing signals.

Aayush Sonthalia, a portfolio manager of emerging markets debt with PGIM Fixed Income, said the worst-case default situation may be avoided as credit conditions have eased.

"There is also an expectation of some loosening of the three red lines policy for asset sales, which would be very helpful," Sonthalia said. "We still think China's property bonds are going to be investable as a whole once the liquidity issues have been addressed."

With a widespread debt crisis among Chinese developers to be fended off while the sector's heft in the global economy remains modest, experts said the risk of contagion from China's real estate stress for the global financial system should also be limited.

According to Sonthalia, the $250 billion or so in bonds issued by the Chinese property sector in the external corporate market is not insignificant, but any risk of contagion for the global financial system should be mitigated by accommodative financial conditions in developed markets, which are significantly bigger in size.

Jack Siu, chief investment officer of Greater China with Credit Suisse, said China's real estate sector and its supply chain are estimated to contribute 5 percent of global industrial production, but most of the sector's activities are confined to the domestic supply chain. Therefore, the sector's stress is expected to have only a limited risk of spreading to the global financial system.

Given that systemic risks should be kept at bay while the property sector's valuation has dropped to a historical low, investment management firm Neuberger Berman is positioning to earn returns from market mispricing on good names, said Peter Ru, the company's managing director and chief investment officer for China fixed income.

"As the real estate sector is an important pillar of the economy, the direction of step-by-step easing should be clear," Ru said. "We expect that by the first quarter of next year, the sector's liquidity situation will be improved, as more time is allowed for easing policies to take effect and potentially more supporting policies to inject confidence to the demand side."