Property market 'too big to fail'?

China's real estate market has been correcting since the beginning of 2014, with slumping sales and falling prices. Among 70 major cities, eight saw month-on-month price drops in the new-home market last month, doubling from March, according to the NBS.

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"We expect this downshift of momentum in the residential property markets to persist along with a macroeconomic slowdown this year," said James Shepherd, head of research for Greater China at Cushman & Wakefield Ltd.

After dipping to 7.4 percent growth in the first quarter, China's economic expansion showed no signs of recovery in the following period as many had expected. It raised the risk that China may miss its economic growth target, of 7.5 percent, for the first time in 15 years.

Almost all the leading economic indicators, such as industrial output, fixed-asset investment and retail sales, showed signs of weakening in April.

Many economists said a persistent and sharper downturn in the property sector is the biggest risk for China's economy in the next couple of years.

"The ongoing correction in the property market is a key to watch for growth and policy response," Chang Jian, an economist with Barclays Plc, said. "The tightening of monetary financing conditions, combined with overbuilding and increased developer leverage in 2013, have worsened the housing market's supply-demand picture. And the current downturn will likely continue into 2015."

Self-fulfilling prophesies of falling house prices, developers' rising financial difficulties on the back of a highly leveraged economy with huge local government debt and a fragile financial system with a large shadow banking sector suggest risks of a disorderly adjustment are rising, Chang said.

"It is true that the property sector posed the biggest risk to China's economy in coming years," Wang Haifeng, a researcher with the Institute for International Economic Research at the National Development and Reform Commission, said. "The earlier the correction, the better. A slowdown of the economy is the cost we have to pay."

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