Moody's has recently downgraded China's property sector outlook from stable to negative, citing a discernible impact on homebuyer spending due to weakened growth.
The ratings agency predicts a potential 5 percent drop in contracted sales over the next six to twelve months. It also suggests that the effects of recent government-backed policy measures to bolster the sector will likely be short-lived.
In a noteworthy move, China's central bank announced a reduction in its benchmark reserve requirement ratio (RRR) for banks, marking its first cut since March. This comes amidst the third instance within a few weeks that the central bank has adjusted a key rate, reflecting the challenges faced by the world's second-largest economy in the aftermath of the Covid-19 pandemic, coupled with a gradual crisis unfolding in the pivotal property sector.
Moody's underscored that credit stress at Country Garden, one of China's largest property developers, has intensified risk aversion among potential homebuyers. Earlier this month, the debt-laden developer narrowly averted defaulting on two substantial interest repayments.
Had these payments not been met, the company would have been poised to become the most significant Chinese real estate entity to default since its rival, Evergrande, in 2021. Country Garden, which still held the title of the largest property developer in China last year, oversees four times the number of projects as Evergrande. The latter's suspension of construction activities last year led to widespread protests and a series of monthly payment strikes.
These recent setbacks faced by both Country Garden and Evergrande have further weakened an already beleaguered sector, grappling with the fallout of the coronavirus pandemic and a broader economic deceleration in China.
According to Moody's analysis, cities with weaker economic foundations are anticipated to witness the most substantial declines in property sales. "Regions with weaker economies will contribute to most of the expected sales decline, also amid continuing population outflow," the report stated.
