Chinese property developers could face increasing liquidity pressure over the next six months to a year, according to S&P stress tests.
With weakening property sales, and tighter credit environment in China and in global markets, the risk to smaller developers and niche developers with large refinancing risks, is expected to increase.
The tests found that Chinese developers could absorb a 10% slump in sales in 2012, but wouldn’t be able to absorb a 30% fall next year. S&P analyst Bei Fu said:
“We view a 30% decline in sales next year as unlikely. However, our sensitivity analysis suggests that this is the point at which many developers, including some large rated players, would feel severe liquidity strain.”
In a report cited by Bloomberg however, S&P analysts said Chinese developers are bracing for slower sales and lower property prices ahead. Fewer than 35 of the 70 cities monitored by the Chinese government posted month-over-month gains in property prices in August.
In an effort to prevent a property bubble China has been trying to restrict home sales and curb lending. Fitch recently warned that China’s credit risk had increased because of the massive debt of local governments which totaled 1.6 trillion yuan in June. Now, about 70% of developers have admitted that their cash flow conditions were worse in August than the previous month.
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