China's property market is overheated.

The People's Bank of China resorting to monetary tightening, liquidity has become hard to come by. This has changed the competitive landscape in Chinese real estate market. Smaller developers are finding it difficult to operate in such a market. As a result, they are being absorbed by their larger counterparts. Lack of funds is one of the reasons for it. In a tight liquid environment, banks are unwilling to lend to smaller developers who have fewer projects. Instead they prefer to lend to larger developers. Lending to larger developers is less risky since they have more stable cash flows. Further, non- availability of funds has meant that smaller developers ha ve turned to alternate sources of financing. But the interest rates are so high that they are unable to service it. Thus, they are left in a lurch. Taking advantage of this situation large developers have started to feast on them. As per news reports, the value of real estate acquisitions in China has doubled in the first half of this year compared to same period last year.

However, the larger developers have to be cautious here. If they overpay their financial health could be at risk. Also, with property prices in China already being above comfort zone, if prices correct anytime in the near future, the large developers will struggle in making debt repayments. In short, these developers have to be cautious that they do not acquire distress companies/assets while trying to increase their land banks.