Tough operating conditions and heightened refinancing risks in China's property market are pushing more developers closer to their downgrade thresholds, Standard & Poor's Ratings Services said in a report yesterday.
In the report titled "The Worst Is Yet To Come For Chinese Developers In Asia's Shaky Property Sector," S&P warned that more credit downgrades are likely in the next six months.
"Many developers in China may be at increased risk of refinancing due to weaker property sales, high funding costs and tightened liquidity. And that will increase the pressure on ratings," S&P credit analyst Bei Fu said in a news release.
The company in the past month downgraded Yanlord Land Group, Coastal Greenland, Yuzhou Properties and Zhong An Real Estate. The rating agency says small developers that are highly concentrated in certain cities and projects are vulnerable to policy risk while bigger, diversified developers stand to benefit.
"Some small and mid-sized companies may find it increasingly hard to maintain their competitive positions when lenders and investors turn cautious on higher-risk credits," the agency stated. "But large and well-capitalized developers will continue to grow by acquiring land at now deflated land prices and accessing funding."
S&P predicts that China's home prices may drop 10 percent between June 2011 and June 2012. Sales volume is likely to be flat at best or slip this year, it said.
Slower property investment is likely to cut into growth for 2012 in the world's second-biggest economy.