Small players bear brunt of squeeze

The cash crunch in the mainland's banking system could add to the pressure on developers, particularly the highly leveraged small players, analysts say.

The overnight Shanghai interbank offered rates hit a record high of 13.44 per cent on June 20 after the central bank initially refrained from intervening to ease the interbank liquidity squeeze.

"This implies that property-related loans, such as development loans and mortgage loans, will become more expensive in the second half of this year, which may lead to further credit tightening, as we expected," CCB International Securities said.

The People's Bank of China's tough stance demonstrated the government was prepared to tackle the property market with the same determination, especially in key cities experiencing rises in housing prices in recent months, the firm said in a report.

Alan Jin, an analyst at Mizuho Securities, said small property players, especially the highly geared ones, would face more difficulty if there was a credit crunch. "It's always the case that small players are more vulnerable in the face of credit tightening," he said.

He said tight liquidity, if it persisted, would reduce the growth momentum in housing prices, and only after that would there be a price correction.

"If [mainland developers] feel really tight, they will cut prices and sell stakes, partial or whole, [in projects] to stronger players. But we need to wait for a few more quarters to see whether a credit crunch will come," Jin said.