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 10 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 Merrill Lynch.

    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 Thursday.

    COGO, which is about 40 percent-owned by major developer China Overseas Land & Investment Ltd. (COLI), last month flagged a 30 percent dip in net profit, citing unspecified “structural economic adjustments” and a big fall in market value of investment properties.

    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.

    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.

    Local governments have already started to ease restrictions on property purchases that were put in place at the Central Government’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.

    “Prices will continue to come down in a gentle and expected manner, unlike the panic we saw in the first half of the year,” 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 sales.”

    China’s newly appointed housing minister, Chen Zhenggao, told developers at a forum earlier last month that clearing inventories is a priority for the second half, further fuelling expectations of more mini-stimulus by local governments.

    (SD-Agencies)