In a statement Wednesday, June 15, Standard & Poor's said that elsewhere in the region, the soaring market in Hong Kong may be at risk of a sharp correction.
In a report titled "Asia-Pacific Real Estate Developers: China Sector Outlook Revised to Negative on Regulatory Tightening; Other Markets Are Stable", Standard & Poor's suggested that conditions were stabilising in Japan and credit profiles were largely improving in Southeast Asia.
Standard & Poor's credit analyst Bei Fu said it was 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 have deepened the market downturn.
"Any meaningful slippage in sales will significantly weaken the developers' cash flow protection measures amid higher leverage and stiff competition,” she said.
The report noted that many developers shored up liquidity ahead of the anticipated market downturn at the expense of weakening their capital structures and increasing their refinancing risks due to the concentration of debt maturities.
A protracted negative cycle would therefore intensify the pressure on credit profiles, said the report.
"Property sales were satisfactory for many rated issuers in the first five months of this year, but we expect the sales momentum to slow as policy tightening starts to bite.
"We expect meaningful price adjustments in the second half of 2011. If sales volumes remain sluggish, developers' liquidity will quickly dry up, suggesting sporadic price discounting will likely intensify,” said Fu.
By The EDGE Malaysia
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