HONG KONG (MarketWatch) – Chinese property developers could face a severe liquidity strain if new housing sales drop 30% next year, with many unable to meet short-term obligations in the event the market undergoes a slump, according to credit-rating firm Standard & Poor’s.
“Weakening property sales and tightening credit conditions at home and globally are the key drivers that increase liquidity pressure,” said S&P credit analyst Bei Fu in a report released Tuesday.
A sales slowdown of 30% next year in China appears unlikely, S&P said, adding that its base case was for sales to grow by 25% to 30%.
Most of the developers it rates would be able to carry on with only minor problems under an alternative scenario in which sales fell 10%, S&P said.
Still, Fu said the risks that smaller and niche developers with large refinancing needs could face a funding shortfall in 2012 were rising.
Chris Oliver is MarketWatch’s Asia bureau chief, based in Hong Kong.