Check out this great video on the Chinese housing bubble. I have heard the same thing from multiple other sources but this is the best intro to the topic. It discusses why many believe there to be a huge real estate bubble in China.
Here is a similar article if you don't like video.
Here The Economist gives a brief summary of this sector's importance and explains why this seemingly obscure sector is so important.
The consequences of a collapse in Chinese real estate would be huge. Much worse then the American housing crises. China is not a stable country, it has over 9000 mass incidents, read riots, every year. A housing bubble could easily lead to a financial crisis, to a economic crash, to maybe even total collapse. Before you get all excited remember how globalization connects us all. They call China the global growth engine of the world for a reason. With the rest of the world already depressed even a small correction in China could send the world spiraling back into recession or depression.
A housing bubble isn't even China's only problem. Municipal governments in China have very limited ability to tax. So instead they confiscate, read steal, land and sell it for huge profits to developers. Not only does this lead to unrest but makes local governments totally dependent on land sales for revenue. On top of that local governments are already having huge debt problems. Imagine what will happen if the property market goes bust.