By Chris Oliver, MarketWatch

HONG KONG (MarketWatch) — China’s real-estate market may face an escalating credit crisis, with industry data for August providing clues that big developers are running short of cash, according to Credit Suisse analysts.

The unfolding situation heralds a perfect storm for China’s home-building industry, and China’s deteriorating credit backdrop should be viewed by investors with alarm, the Credit Suisse analysts said.

“I advocate selling all [Chinese] property-developer stocks because a credit crunch is coming,” said Credit Suisse analyst Jinsong Du, speaking with MarketWatch about the research.

Du said worries he’s had for a while about the housing market were confirmed by the “big disconnect” in data released by China’s National Bureau of Statistics on Friday.

Among figures out late last week, investment in residential projects rose to 432.9 billion yuan ($67.75 billion) in August, up 37% on year, or 4% higher from the prior month.

Meanwhile, completed residential projects in August totaled 37,250,000 square meters, a rise of 1% from a year earlier, but down 6% from the prior month.

Credit Suisse analysts said the Statistics Bureau’s figures back its earlier research which flagged that China’s real estate developers were beginning to face major headwinds.

The report, published in May, forecast that payment disputes between developers and their contracted construction companies would become more widespread, eventually resulting in construction delays and pushed back delivery dates.

“It’s finally shown up in the numbers,” said Du.

In spite of curbing the acquisition of new land and pressing for builders to slow their work, developers appear to have exhausted options to preserve cash, Credit Suisse said in its report dated Sept. 6.

Net gearing rose slightly in the first half, even as firms scrambled to improve their balance sheets, with the result “financials [are] much worse than they appear,” said the Credit Suisse analysts.

Credit Suisse forecasts property prices will decline in the second half, as sentiment surveys show enthusiasm towards property ownership beginning to wane.

Chris Oliver is MarketWatch's Asia bureau chief, based in Hong Kong.