Smaller, cash-strapped players are being squeezed out of the real estate market as competition intensifies and the government continues to tighten its grip on the sector in a bid to cool housing prices. But this is a healthy development that will help stabilize the market and promote quality- rather than quantity-oriented urbanization.

The government's tough regulations on credit channels have made the financing capability of real estate developers and their sales volumes the key to their competitiveness. This is because tougher credit policies will not directly affect leading developers' financing abilities, because they rely more on sales and other financing channels, such as trust funds and overseas financing, rather than loans. The policies, in fact, will force the industry to be more concentrated in the hands of the large corporations.

Latest China Real Estate Association figures show that there are more than 60,000 real estate developers in China, but the revenue from housing sales of the top 500 developers accounted for 39.2 percent of the total, or 2.53 trillion yuan ($408.35 billion), in 2012. Furthermore, the top 50 developers accounted for 59 percent of the revenue for housing sales and the top 100, more than 70 percent.

"The era of high profits for developers is coming to an end," says Zhu Zhongyi, vice-president of the China Real Estate Association.

Li Zhanjun, director of Shanghai E-house Real Estate Research Institute Center, says the government's tougher restrictions on credit will not affect developers' financing ability directly in 2013, but it is bound to have a big impact on developers, especially smaller developers, if the government imposes more restrictions that lead to a sharp drop in sales.

The proposed 20 percent tax on capital gains has increased property transactions because people are rushing in to close deals before the policy is implemented, though sales will drop when the capital gains tax is implemented. And with local governments required to announce detailed measures to curb prices by the end of the month, the housing market is likely to gradually feel the squeeze of government polices.