China Developers Outlook Raised to Stable on Liquidity, S&P Says

Standard & Poor’s raised its outlook for Chinese residential developers to stable from negative, saying the companies are facing “reasonably favorable” credit and operating conditions in the next six to 12 months.

Chinese developers were able to improve their liquidity at favorable costs because funding channels reopened, the credit ratings company said a report released today. S&P said it didn’t expect the central government to “drastically” tighten or loosen controls on the property market.

“We expect to take more positive rating actions this year,” S&P analysts, led by Bei Fu, said in the report. “China’s residential real estate developers are on less shaky terrain this year.”

Home prices posted the biggest gain in two years last month, rising 1 percent from December, according to SouFun Holdings Ltd., China’s biggest real estate website owner. Developers have put more properties on the market since the Ministry of Housing and Urban-Rural Development said in December that it would support demand from residents seeking bigger homes this year, according to SouFun.

Home sales strengthened late last year and prices in the nation’s 100 major cities will rise as much as 5 percent this year, S&P said.

The credit quality of large and small developers will diverge, the ratings company said. While the largest developers take advantage of the market conditions to increase market share, smaller ones are likely to become increasingly vulnerable, or even be squeezed out of the industry as they struggle to raise funds and overcome “stiff” competition, it said.

“We expect overall property prices to rise modestly this year; sales volumes could increase for bigger developers but remain sluggish for smaller players, which have fewer available projects,” Fu wrote in the report.

S&P cut the outlook for Chinese developers to negative from stable in June 2011, citing tighter credit and government curbs as well as slowing property sales.

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