SHANGHAI -- Word on Wednesday that a midsize real estate developer in the Chinese province of Zhejiang has gone belly up is fueling concerns that the country's housing bubble may be on the verge of bursting.

Zhejiang Xingrun Real Estate, which was having trouble selling its properties, found itself strapped for cash and saddled with 3.5 billion yuan ($565 million) in liabilities.

The firm owes roughly 2.4 billion yuan to banks and another 700 million yuan or so to individual investors from funds raised illegally, according to the government of Fenghua, the city where the firm is based.

Local authorities have detained two of the company's managers on related charges and say they are preparing indictments. The city government has put together a task force to uncover the specifics of the collapse and deal with its repercussions.

The development comes as the Chinese real estate market shows signs of increasing stress. Developers have been lowering property prices one after another since around the start of February.

On top of a heightened sense that housing inventories are overstocked in smaller cities, banks have begun to tighten financing for real estate projects. Industrial Bank, for instance, created a stir on Feb. 24 by announcing it was halting some loans to real estate firms.

Moreover, new-housing prices fell in February from January in four of 70 cities, according to data released Tuesday by the National Bureau of Statistics. In such major cities as Shanghai, prices are still rising but not as quickly.

Local governments rely on selling off property to shore up revenue, while individuals and companies actively make speculative investments in real estate.

A major source of uncertainty comes in the form of so-called wealth management products. Emblematic of the shadow banking sector, these high-interest investments are often used to finance development projects. A downturn in the housing market could set off large-scale defaults