Is property a major risk for Singapore's economy?

Slumping property prices are among the biggest risks for Singapore's economy, analysts say, as a dip in construction activity drags on growth.

Singapore's economy expanded an annualized 1.2 percent in the third quarter, below expectations for a 1.8 percent rise in a Reuters poll, data on Tuesday showed.

Many analysts attribute the decline to slowing construction activity - the sector expanded 1.4 percent, sharply slower than 4.1 percent in the second quarter - but property prices may be of greater concern.

Read MoreIs Singapore driving away property investors?

"The bigger risk for the Singaporean economy is the property asset market cooling down, rather than physical construction activity cooling down," said Seng Wun Song, regional economist at CIMB bank.

"If the pace of the global economic recovery continues to plod along rather than pick up steam, the deceleration in Singapore asset prices could be sharper than the current 10-15 percent range, which would have repercussions on equities and for the wealth effect," he added.

Prices in Singapore's prime residential market - the priciest 5 percent of the broader market - fell 7.3 percent in the first half of 2014, according to estate agent Knight Frank.

The government has enacted eight rounds of cooling measures since 2009 after prices rose more than 60 percent between 2009 and 2013, fueled by record-low interest rates, and these appear to be taking affect.

Read MoreCooling property prices provide relief for Singapore banks

Premium Singapore apartments
Andrew Lam | iStock / 360 | Getty Images

External trigger

"Property could be one of the big cogs in the whole risk mechanism impacting Singapore," Vishnu Varathan, market economist at Mizuho Bank told CNBC.

But it would likely take an external trigger from the global economy to trigger a sharp price correction, Varathan said.

"For property to compound into a big risk you would need to see a very negative spillover from China, or the unlikely case of a faster-than-expected rate hike by the U.S. Federal Reserve," he said.

If either of these scenarios materialized, this could produce a "cascading effect" on property prices, Varathan said, at a time when there has already been credit tightening measures put in place and people are expecting interest rates to go higher.

"A confluence of these factors could lead to domestic demand drying up... prices stumbling, which would affect household balance sheets at a time where leverage has increased... But having said all of this we are not expecting a similar scenario to the Asian financial crisis of 1997-1998," he added.

Read MoreFed's Evans sees slow inflation rise, counsels patience on rate decision

No need to worry

Other analysts are less concerned about declining property prices and construction activity.

"We are seeing a stabilization in Singapore's property market rather than a bear market," said Selena Ling, economist at OCBC bank.

Weakness in the construction sector could continue into the fourth quarter, but if declines become excessive, the government would likely relax some of its curbs on foreign manpower, Ling said.

Singapore experienced construction boom in recent decades, as construction firms capitalized on the benefits of importing cheap foreign labor. However, the government has since introduced curbs on the amount of foreigners allowed into Singapore in response to a public backlash against high levels of foreign immigrants.

"It's also important to note that construction doesn't make up a large proportion of the Singapore economy," she said. "Services and manufacturing are much larger."

Services accounted for 70 percent of gross domestic product in 2013, manufacturing accounted for 20 percent and construction 5 percent.

Read MoreSingapore Q3 GDP misses forecasts