On Thursday, Moody's Investors Service downgraded China's property sector from stable to negative.

This may have something to do with the significant property construction in China despite the large number of vacant and under-performing commercial and residential properties.

According to Chinesecrash.com, there are approximately 64 million vacant apartments in China, essentially creating Ghost Cities. These vacancies are due in large part to the increasing divide between China's rich and poor leaving many without adequate housing.

Residential housing investment as a share of China's GDP has tripled from 2% in 2000 to 6% in 2011 - the same mark the U.S. housing market hit before imploding. Additionally, over the past eight years, housing prices in China have gone up 140 percent nationwide and as much as 800 percent in Beijing. As a result, home purchases have fallen 50.9% year over year and 41.5% month over month for the month of March.

In response, China's central government has launched several rounds of regulations in order to cool down the over-heating market. Of the most notable measures are the fundraising restrictions for real estate developers which have made it virtually impossible for developers to fundraise within China. Developers and government critics alike believe that this is merely a ploy to take over development in the country since people with connections within the government are still able to get funding for their projects.

Despite all of this, former U.S. Treasury Secretary Henry Paulson remains optimistic and has lauded the Chinese government's handling of the potential housing bubble.

I've had a little bit of experience with housing bubbles, he said, chuckling, in a recent Wall Street Journal interview. And let me tell you that the good news here is that this is recognized and the government cares a lot and they're focused on it. And they're taking, I think, some pretty draconian steps.

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