Credit conditions in China's real estate development sector have become increasingly challenging, leading Standard & Poor's Ratings Services to revise its industry outlook to negative from stable for that market. It suggests that economic recovery and low interest rates continue to support other markets in Asia-Pacific despite inflationary and policy risks, according to its report, “Asia-Pacific real estate developers: China sector outlook revised to negative on regulatory tightening; other markets are stable.”
"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 have deepened the market downturn," comments Standard & Poor's credit analyst Bei Fu. "Any meaningful slippage in sales will significantly weaken the developers' cash flow protection measures amid higher leverage and stiff competition."
The report notes 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.
"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 have deepened the market downturn," remarks Standard & Poor's credit analyst Bei Fu. "Any meaningful slippage in sales will significantly weaken the developers' cash flow protection measures amid higher leverage and stiff competition."
Elsewhere in the region, Standard & Poor's believes that the soaring market in Hong Kong may be at risk of a sharp correction. It further suggests that conditions are stabilizing in Japan and credit profiles are largely improving in Southeast Asia. The report card also comments on the credit outlooks for the 41 publicly rated issuers in Asia-Pacific, 30 of which are based in China and mostly rated toward the low end of our rating spectrum.
