China’s Developers to Face More Downgrades on Refinancing Risks, S&P Says

Chinese developers will probably to face more credit rating downgrades over the next six months as refinancing risks increase, according to Standard & Poor’s.

The nation’s home prices may decline 10 percent by June from a year earlier, while sales volume is expected to be little changed or may even slip in 2012, S&P said. More developers, including the biggest real estate companies, are offering discounts, the credit rating company said.

“The worst is yet to come for Chinese developers,” S&P analysts led by Bei Fu said in the report today. “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.”

Premier Wen Jiabao said that regulation of the real estate market is at a “crucial stage” in his work report to the National People’s Congress on March 5. The government is targeting a 7.5 percent expansion in gross domestic product this year, down from the 8 percent goal in place since 2005.

Finance Minister Xie Xuren said March 6 that the nation may expand property-tax trials as the government prolongs efforts to cool the real-estate market. The country imposed property taxes for the first time in Shanghai and Chongqing last year.

Brokerages including UBS AG predict a loosening of property curbs as early as the middle of the year. Jing Ulrich, managing director and chairman of global markets for China at JPMorgan Chase & Co., said yesterday the “worst is behind us” for the nation’s real-estate market, adding that property prices and transaction volumes will begin to improve in the second half.

Falling Home Prices

China’s February home prices posted the biggest decline in 19 months as the government pledged to maintain curbs on property, according to SouFun Holdings Ltd. (SFUN), the nation’s biggest real-estate website owner. Home prices dropped 0.3 percent last month from January, according to SouFun, which began compiling the figures in July 2010 when housing values fell 1.3 percent. Residential prices slid in 72 of 100 cities tracked by the company last month, 12 more than in January, it said on March 1.

The central government isn’t likely to reverse its policy direction this year, while it could relax some of its property tightening in the second half of this year if the economy is weaker than expected and inflation continues to ease, S&P said.

China Vanke Co. (000002), the country’s largest publicly traded developer, said contracted sales in the first two months fell 27 percent from last year to 19.05 billion yuan ($3 billion).

S&P cut Chinese developers’ outlook from “stable” to “negative” in June, citing tighter credit and a slowdown in sales that may lead to price cuts because of government curbs to prevent asset bubbles.

To contact Bloomberg News staff for this story: Bonnie Cao in Shanghai at

To contact the editor responsible for this story: Andreea Papuc at

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