April 14, 2011 / 8:28 AM / 9 years ago

UPDATE 1-Moody's downgrades China property sector to negative

* Credit conditions to worsen in next 12-18 months for developers

* China premier reaffirms property tightening measures in place

* Some cities to see mild home price falls

BEIJING, April 14 (Reuters) - Moody’s Investors Service on Thursday downgraded its outlook for China’s property sector to negative from stable on concerns about deteriorating credit conditions for developers over the next 12 to 18 months.

The downgrade came a day after Premier Wen Jiabao told a cabinet meeting that home prices were still rising overly fast in some cities and reaffirmed intentions to keep tightening policies in place against property speculators.

Moody’s said in a report that reduced bank lending, rising interest rates and increasing property supply would inevitably bring down sales and profit margins while also worsening their balance sheet liquidity for some developers.

“During the next 6-12 months, Chinese property developers will face challenges in securing debt financing, as the government enforces its strategy of slowing monetary growth to reduce the risk of accelerating inflation and to manage domestic banks’ exposure to the property sector,” the ratings agency said.

Some developers, including Evergrande , have already tapped the offshore debt market for funds.

Moody’s added that proceeds from contracted sales of residential properties would drop by an average of 15-30 percent in China’s first-tier, and most second-tier cities, although the impact on individual developers would vary.

China has rolled out a slew of measures to curb housing inflation in the past year and a half, including four rises in interest rates since October and restrictions on multiple home purchases.

“Ordinary commercial housing prices are still far away from the target of government controls and the expectation of the general public,” Wen said in a cabinet speech published on Xinhua. “Some local governments are not forcefully implementing central government’s macro control measures, and the results of controls need to be solidified and enhanced.” [ID:nL3E7FE065][ID:nLDE73C187]

Moody’s said the tightening measures would hinder further price rises and lead to a mild correction in cities where housing price soared over the past 12 to 18 months.

Moody’s pointed out that liquidity conditions of 10 developers, including Shimao Property , Greentown China and Central China , would be more vulnerable if their sales fall by 25 percent from a year earlier.

Another global ratings agency Fitch said in a report in January that the 2011 credit outlook for Chinese property developers was stable, but could turn negative in the event of a severe global or regional financial crisis or other widespread negative events leading to a sudden and sharp slowdown in China’s economy or a major disruption in its banking system coupled with rising investor panic.

Reporting by Langi Chiang; Editing by Jacqueline Wong

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