Property developers in the country would have more merger and acquisition opportunities this year as the realty market may witness a correction, ratings agency Standard & Poor's said Thursday.

"Mid-2010 could prove to be the turning point for many developers, as increased supplies would see competition intensifying even as tighter policies weaken demand," said Christopher Lee, corporate ratings director at Standard & Poor's. "Growth rates of many firms may slow, while M&A activity could increase," he said.

Customers inspect a residential project model at a property fair in Shenyang, Liaoning province. Property prices are likely to fall from mid-2010 as slower demand, higher supply, and various government initiatives may dampen market sentiment, said experts. [China Daily]

The ratings agency said it has a "neutral" outlook for the nation's property sector this year as the market uncertainties are somewhat balanced by the supportive underlying fundamentals and the strengthening economy.

"Sales prices are likely to fall from mid-2010 as slower demand, higher supply, and various government initiatives could dampen market sentiment. However, we do not expect developers to find 2010 as severe as the downturn in 2008 or as volatile as 2009," said Bei Fu, associate director of corporate ratings at S&P.

According to the National Bureau of Statistics, property prices in China's 70 major cities climbed 1.5 percent year-on-year. In some key cities, like Beijing and Shanghai, the growth rate is expected to exceed 50 percent. Though the government's tightening measures led to a sharp decline in home sales, the National Development and Reform Commission's price index of 70 major cities in China rose 9.5 percent in January this year, up from 7.8 percent in December 2009. This was the highest level since April 2008.

"Bigger and stronger property players will fare well as they have the scale and financial resources to grow, while smaller firms may find the market condition more challenging," said Fu.

The ratings agency said it expects China Overseas Land & Investment Ltd, rated "BBB-", to be one of the biggest gainers of the industry consolidation this year. Companies rated "B+" and below, including Greentown China Holdings Ltd and Shanghai Zendai Property Ltd, could be potential acquisition targets, said S&P.

Policy tightening is seen as a key risk for developers as such moves would often trigger wild swings. Though the central government has announced a slew of tightening measures since the end of last year, it may take further steps to combat excessive growth and irrational price hikes.

The People's Bank of China raised the reserve requirement ratio by 50 basis points for the second time this year on Feb 12 to slow bank lending.

"In our view, the policy tightening this year will be incremental and cautious, with a strong focus on stability," said Fu.

A healthy growth of the real estate sector is seen as the foundation for social equilibrium and the key for development of upstream and downstream industries. Against such a backdrop, the central government would be careful to take steps to achieve its policy goals without rocking the realty market, he said.