Moody’s negativity on China property development

Published: May 22nd, 2014
Written by: Editorial Team

Moody’s Investors Service changed its credit outlook from stable to negative for Chinese developers.

This is due to a slowdown in the sales growth of home sales as cash flow weakens and stocks are rising. This is the first change by the credit rating provider on the Chinese property market since late 2012. The growth of home sales is set to decline to a maximum of 5% year-on-year over the next 12 months. This is much lower than the 27% growth shown last year.

Recent bank defaults have prompted a more selective approach in credit granting. This will affect the cash flow of developers who have weak credit facilities, Bloomberg says.

Government restrictions over the past four years to cool home sales, property construction and the housing market is slipping and has caused a slowdown on China’s economy which has seen the slowest growth in six quarters during the first quarter of this year.

Developers with high stock levels, weak sales capacity and limited access to funding will be most at risk.

New home prices saw a rise during April, while home sales declined 18% compared to March. Moody’s may reconsider its decision if the country shows improvement over the next 12 months.

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