While mainland property firms have enjoyed growth in sales and market capitalisation over the past few years, Deloitte China is less optimistic about the future.
The professional services firm cites pressures on profitability from slower growth, lower liquidity and surging gearing.
"Cost pressures have been mounting on Chinese property companies since 2011, leading to a staggering increase in their finance expenses by about 44 per cent as a result of the mainland government tightening its monetary policy," said Richard Ho, a national real estate industry leader at Deloitte China.
"The impact from high land premiums paid since 2009 has started to surface since 2012 and onwards, weighing heavily on profitability."
The firm suggested in its latest property research report that the mainland property sector would remain significantly influenced by the regulatory regime and administrative measures because of the government's long-term commitment to combating high property prices.
Gary Fung, a tax partner at Deloitte China, said in the report the government was unlikely to loosen its control over property prices, but he said the policy had not been substantively tightened.
Regarding outbound mergers and acquisitions, Ho said leading listed Chinese real estate firms were acquiring property assets in Hong Kong, Singapore, South Korea, Malaysia and the United States.
"While not necessarily related to the fall in profitability, it has become an emerging trend since 2010, and momentum is building up," said Tony Kwong, a financial advisory partner at Deloitte China. "Our sources tell us that big real estate companies are looking for opportunities overseas, especially in Europe."
During the past three years, mainland property companies have done about 30 outbound merger and acquisition deals worth about US$13 billion. Hong Kong has been the most popular destination for acquisitions, with 43 per cent of outbound deals heading for the city.
"In order to stay competitive, it has become imperative for property companies to embark on new market expansion or penetration in existing markets," Ho said.