China residential sector primed for shake-up as downturn drains cash

[HONG KONG] An oversupply of residential property and a market slowdown have left Chinese developers with their worst cash crunch in more than two years, revealing the extent of China's real estate downturn and paving the way for further consolidation in the sector.

A Reuters study of more than 80 China-listed developers that have declared March quarterly earnings showed cash to short-term debt ratios at two-year lows amid a steady decline in margins since 2011.

That was the year the government moved to rein in the overheating housing market through measures including higher mortgage rates and limits on how many homes each family can buy.

But the government crackdown is only part of the story. A downturn in property prices, pressure to pay for last year's record land purchases, and a tighter credit market have …