* Several smaller developers have flagged weaker earnings
* Sales volumes recovering but discounts hitting margins
* H2 likely to see market stabilise - analyst
* Top 10 players only make up 20 pct of market
By Clare Jim
HONG KONG, July 31 A number of small developers
- the kind that by sheer weight of numbers dominate China's vast
property sector - are set to report big drops in earnings or
even losses as the industry grapples with tight credit, sluggish
sales and excess supply.
The first-half results are likely to stand in contrast to
the performances of larger players, which have weathered the
downturn relatively better thanks to their greater exposure to
top-tier cities, pricing power and easier access to credit.
The pressure on smaller developers is significant because
they make up the major chunk of a sector that accounts for more
than 15 percent of China's gross domestic product. The top ten
players account for less than 20 percent of the market by sales.
"Big players have good execution, so their profit will be
better. Small players offer more price cuts," said Raymond Ngai,
head of Greater China Property Research at Bank of America
China Overseas Grand Oceans (COGO) will be among
the first of the country's smaller developers to report earnings
when it releases first-half results on Thursday.
COGO, which is about 40 percent-owned by major developer
China Overseas Land & Investment Ltd (COLI), this
month flagged a 30 percent dip in net profit, citing unspecified
"structural economic adjustments" and a big fall in market value
of investment properties.
"The expected weakened results (of COGO) for 1H 2014 reflect
the challenging operating environment in third-tier cities ...
against the backdrop of a tight environment for bank credit,"
Moody's senior analyst Kaven Tsang said in a note.
Greenland Hong Kong and Jingrui Holdings Ltd
- two other smaller players expected to report in
August - have said they will incur a first-half net profit fall
and a loss, respectively, due to a drop in the number of
properties completed and delivered.
While many small Chinese property companies are feeling the
heat, some of the larger developers are expected to post healthy
revenue growth for the first half, lifted by record 2013 sales
and less spending on land purchases due to a market slowdown.
Many industry watchers expect the market to bottom out in
the second half thanks to further government stimulus and easier
credit, although margins will continue to be squeezed across the
board as developers offer discounts to boost sales.
"The second half will be better; sales should have bottomed
in May," Bank of America Merrill Lynch's Ngai said.
Local governments have already started to ease restrictions
on property purchases that were put in place at Beijing's behest
when housing prices were soaring, while some banks in top-tier
cities such as Shanghai and Shenzhen are reportedly offering
mortgage rate discounts to first-time homebuyers.
Last month, China's home sales surged 32.5 percent from May.
However, sales by value fell 5.4 percent, reflecting price cuts
and other incentives developers have been offering to entice
buyers and offload unsold homes.
"Prices will continue to come down in a gentle and expected
manner, unlike the panic we saw in H1" said BOCOM International
analyst Toni Ho. "Now market expectations have changed, price
cuts are no longer seen as negative as long as they can bring in
China's newly appointed housing minister, Chen Zhenggao,
told developers at a forum earlier this month that clearing
inventories is a priority for the second-half, further fuelling
expectations of more mini-stimulus by local governments.
The CSI300 real estate subindex of leading
Shanghai and Shenzhen-listed A shares has risen around 14
percent in July, the biggest monthly gain since December 2012.
(Editing by Anne Marie Roantree and Stephen Coates)