China's strong growth, one of the fastest sustained expansions of a major economy in history, has been driven for decades by a real estate boom fueled by population growth and urbanization.

But the all-important real estate market, which once accounted for 30% of the economy, went into crisis more than two years ago, after the government imposed restrictions on real estate developers' loans.

According to CNN, investment in the real estate sector fell last year for the first time in a decade and, with no help from Beijing in sight, the real estate recession is likely to drag on, posing a major threat to China's growth prospects over the next three to five years.

"For China, the only way out of this [real estate] crisis is a slow but painful adjustment," says Alicia Garcia-Herrero, Natixis' chief economist for Asia-Pacific. "The adjustment has only just begun and will take years to complete."

The country needs to match the supply of housing with a much smaller demand, which is decreasing due to the ageing of the population, he adds.

It's a difficult task. Last month, a former deputy director of the national statistics bureau was quoted by state media as saying that China's total population of 1.4 billion would not be enough to fill all the empty apartments scattered around the country.

However, the government has already introduced a nationwide "de-stocking" policy to reduce oversupply, including slowing the pace of land sales in cities and encouraging developers to lower housing prices in order to stimulate demand.

The absorption of this "excess capacity" in the real estate sector will inevitably damage China's economic growth, according to Garcia-Herrero.

"China is expected to reduce growth by around one and a half percentage points every year until at least 2026," he adds.

The World Bank cut China's gross domestic product (GDP) forecast for 2024 from 4.8% to 4.4% on Sunday, citing persistent domestic difficulties such as high debt, real estate weakness and an ageing population.

A few days earlier, the International Monetary Fund (IMF) said it expected China's growth to slow to around 3.5% in the medium term, from around 5% this year, due to demographic factors and slowing productivity growth.