Moody’s on Thursday downgraded China‘s property sector outlook to negative from stable, saying weaker growth was impacting homebuyers’ spending.
The ratings agency said contracted sales were expected to fall around 5 percent over the next six to 12 months and that the impact of “recently strengthened policy support” by the government would be “short-lived”.
China’s central bank on Thursday announced a cut to its benchmark ratio for the amount of cash banks must hold in reserve, known as the RRR — its first cut since March.
However it is the third time the central bank has reduced a key rate in the space of a few weeks as the world’s second-largest economy struggles with post-Covid headwinds and a slow-motion crisis in the crucial property sector.
Moody’s added that credit stress at one of China’s biggest property developers, Country Garden, had “amplified homebuyer risk aversion”.
Earlier this month, the debt-laden developer narrowly avoided defaulting on two multi-million dollar interest repayments.
Had that not been repaid, the company would have faced the prospect of becoming the biggest Chinese real estate firm to default since rival Evergrande in 2021.
The company, which was still the largest property developer in China last year, has four times as many projects as Evergrande, whose shutdown of construction sites last year led to protests and monthly payment strikes.
The major setbacks faced by Country Garden and Evergrande are further weakening a sector already damaged by the coronavirus pandemic and a broader economic slowdown in China.
According to Moody’s, economically weaker cities are expected to experience the biggest drop in property sales.
“Regions with weaker economies will contribute to most of the expected sales decline, also amid continuing population outflow,” it said.