The outlook for Asian property developers, particularly in China, remains bleak. Standard & Poor’s latest report on the sector “Worst Is Yet To Come For Chinese Developers In Asia’s Shaky Property Sector” notes that Asian property markets remain under strain to varying degrees due to macroeconomic and industry-specific factors. Chinese developers face the harshest conditions, with rising refinancing risks. In view of these harsh conditions, Standard & Poor’s stands by its negative outlook for China’s property sector. Indeed, we believe Chinese companies will likely face more downgrades over the next six months. Developers elsewhere in the region will also find the going tough to varying degrees. Macroeconomic and industry factors in each Asia market will support or undermine rating performances. In China, we expect property prices to decline by 10% between June 2011 and June 2012.
Developers are also bracing for tougher property market conditions as the economic outlook weakens. However, unlike in the sharp downturn in 2008, most companies that we rate have improved their financial management and flexibility. These companies stand in good stead to weather the market correction that we expect, particularly in China. Nevertheless, the polarization of the property market will continue. On the one hand, large and well-capitalized developers will continue to grow by acquiring land at now deflated land prices and accessing funding. On the other, smaller and some mid-sized companies may find it increasingly hard to maintain their competitive positions when lenders and investors turn cautious on higher-risk credits.
To see the report, “Worst Is Yet To Come For Chinese Developers In Asia’s Shaky Property Sector”, click here.