Ratings agency Standard & Poor's has downgraded its outlook for China's real estate development sector to negative from stable, following a tightening of credit conditions in the country and slower sales. Beijing's tightening of monetary policy to rein in inflation and prevent a property bubble has heightened concerns that developers will struggle to raise funds as credit dries up reports the Wall St Journal

More negative rating actions among Chinese developers
"We're likely to see more negative rating actions among Chinese developers in the next six to 12 months because tightened onshore credit conditions and increasingly restrictive government policy are likely to drive weak sales for the remainder of the year," Bei Fu, director of corporate ratings at Standard & Poor's, said in a report Tuesday.

"Any meaningful slippage in sales will significantly weaken the developers' cash flow protection measures amid higher leverage and stiff competition."

Many Chinese property developers have shored up liquidity in anticipation of a downturn in the real-estate market, but this has weakened their capital structures and increased refinancing risks, the report said.

Price correction of 10% in the next 12 months
"We expect the majority of the rated issuers to withstand a property price correction of 10% in the next 12 months," said the agency, adding there is also a low probability that prices will correct as much as 20%-30%, as "the government will want to prevent a hard landing for the sector, particularly ahead of the major reshuffle of top officials early next year."

 


Comments

05/13/2013 04:04

We should always consider the option of refinancing.

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