Completed commodity housing on the mainland increased by 13.6 percent to 600 million square meters (in gross floor area) in the first eight months of the year compared with a year ago.

And this was despite a string of austerity measures imposed by the government to fence off asset bubbles and contain inflation, according to China Index Academy. The average selling price of commodity housing also gained a solid 10 percent to 5,184 yuan per square meter from a year ago.

However, in August, the average home price in the top 10 cities declined by 0.41 percent month-on-month, the first fall since September 2010, as inventory surged. In the face of the mounting inventory, which is likely to exceed last year's peak level in the fourth quarter of this year, where will the property market head to in the medium term?

The prospects are mixed, with big players likely getting bigger and stronger while some small players will probably vanish. In fact, most major listed property developers achieved decent year-on-year earnings growth in the first half of 2011 by adjusting their sales and business strategies, despite the government's continued tightening measures, reflecting their strong risk management capabilities.

Since 2008, Glorious Properties has focused on providing smaller flats to meet the demand of first-time home buyers who are less likely to be affected by the government's credit tightening measures, compared with multiple-home purchasers.

Meanwhile, Vanke, one of the key developers on the mainland, sees an insignificant impact on its bottom line, albeit its gross margin may contract by 1 percent to 2 percent this year, as the company has slowed down its property sales recently amid weaker market sentiment, suggesting the developer's prudent cost control capability, apart from its stronger sales performance this year.

Another key player, Evergrande, generated revenue of 1 billion yuan accounting for some 10 percent of the developer's total sales in July - from property sales to staff, which involved very attractive discounts. (The developer said such discounts have been restored to normal levels of 2-4 percent lately.)

Furthermore, there have been increasing signs that some developers are expanding their income sources by diversifying into other high-growth and capital-intensive sectors, such as catering, entertainment, finance, entertainment and mining.

However, some smaller developers who have major business exposure in tier-two and tier-three cities where home purchase restrictions have been imposed are now on the verge of going broke due to the negative impact of government tightening measures, which have resulted in higher inventory and lower liquidity.

Their vulnerability may increase if their development projects are located in places where there is oversupply or lower product diversification. Thus, in the next few quarters, they are likely to slash prices to meet their annual sales target and boost cash flows. They may also become acquisition targets of stronger companies.

This scenario will likely remain for a period of time, given that the People's Bank of China reaffirmed last month that there would be no change in its relatively conservative monetary policy and tightening measures in the second half of 2011.

Therefore, it would not be a surprise to see further consolidation in the sector, with market leaders boosting their shares through acquisitions of projects or companies, and price cuts in their project launches in the next six months to nine months.

Property developers, with lower exposure to overheated regions, lower gearing, lower exposure to high-end projects, and with more conservative approaches to land replenishment to ensure cost efficiency, are likely to stand out during the sector consolidation.

Nevertheless, plunges in property prices are unlikely to be seen as these could add extra pressure on the banking system and lead to an increasing number of home owners with negative asset value, a scenario the regulators dislike. Moreover, local governments need to generate revenue from land sales for economic development.

Anyhow, the mainland property sector is likely to have downside support, benefiting from the country's favorable fundamentals, including continued population growth, surging incomes, as well as a likely rebound in the country's money supply growth in the future for further economic development.

The author is Vice Chairman & Group CEO of Vigers Group, an international property consultant. The opinions expressed here are entirely his own.

(HK Edition 09/23/2011 page2)