Fitch says the economic impact of the cooling down of the housing market will continue well into 2018, and expects China's GDP growth to slip slightly below six per cent.
"Housing is the key cyclical sector in the Chinese economy, and will weigh on growth in the second half of the year," the report said.
Fitch attributed the downturn to strict restrictions by the government on house purchases across cities and tighter credit conditions aimed at arresting "excessive froth in the market."
Tougher government measures, including stricter down payment requirements and growing focus on controlling leverage and limiting financial risks since last December has led to increased interest rates, which has slowed down the sector.
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Fitch believes a cooling housing market will help sales to stabilise and prices to fall during the second half of the year.
Housing prices in main Chinese cities, including Beijing, Shanghai, Guangzhou, have risen 90 per cent in the last four years while those in smaller cities have gone up by 10 to 25 per cent, according to the agency.
