Moody's goes negative on property sector

According to a report released by Barclays Bank Plc's Hong Kong office on Wednesday, Chinese builders will achieve their sales targets this year but at the cost of declining margins.

The bank found that about 60 percent of developers don't rule out discounts to stimulate sales, while one in five anticipate lower margins this year on contracted sales.

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"We believe price cuts are inevitable to stimulate homebuyer sentiment," the report said. "Any price cuts could stimulate homebuyer sentiment ... Although the PBOC has urged banks to prioritize first-home mortgages, most developers believe the tight mortgage environment will continue, with a drawdown period of two to three months."

Separately, the bank said the trend of large developers becoming larger should continue as quality developers keep grabbing market share.

Moody's also forecast market consolidation during the downturn. "It can take more forms. While merger and acquisition activity depends more on market valuations, which vary, market players could also purchase each others' projects like they did last time," said Leung.

Some Chinese homebuilders such as Greentown sold megaprojects to peers during the 2012 downturn.

Kaven Tsang, senior analyst at Moody's, said in the current challenging environment, it's crucial for developers to have the backing of banks.

"Beyond project funding, developers will also benefit if banks are active in providing mortgages," he said, adding that while a majority of developers focus on mass market housing, their target consumers are largely first-time home purchasers who carry huge mortgages.

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