The volume of real estate transactions has fallen and prices are stagnating in the wake of steps by the central government to cool the market, fanning concerns among investors that investment in property will droop and drag down demand for commodities.
"It's a bubble and it's unpredictable how it will play out in the banking system," Rogoff told Reuters on the sidelines of AsianInvestor's Asia-Pacific Debt Investor Forum.
"There's a lot of adjustment needed in China and property is the immediate thing to point at," Rogoff, a former chief economist at the International Monetary Fund, said.
He said Chinese officials were doing the right thing to tackle the problem proactively "from a position of strength".
Measures rolled out by the government in recent months include higher down payments, the end of mortgage rate discounts, curbs on purchases of multiple homes and restrictions on lending to developers.
Xu Shaoshi, minister of land and resources, said at the weekend that he expected prices to start falling within a few months as a result of the government's curbs.
In an earlier interview with Bloomberg Television, Rogoff had voiced fears about the impact of the tightening on China's banks.
"You're starting to see that collapse in property and it's going to hit the banking system," he told Bloomberg.
Many economists who track China are less pessimistic. They argue that there is relatively little leverage in the Chinese property market because home owners must make a down payment of at least 20 percent and many pay entirely in cash.
"Despite the importance of the property sector in the economy, we believe that the deflating of this bubble should have only a limited impact on the real economy and the banking system," Nomura's chief China economist, Sun Mingchun, said in a report.
Turning to Europe, Rogoff told Reuters that Greece was unlikely to escape restructuring its debt and said Portugal and some Eastern European countries might suffer the same fate — Reuters
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