A tough operating environment for property developers as a result of new government legislation, rising interest rates, reduced bank lending and a growth in supply has led Moody's Investor Services to downgrade its outlook for the Chinese property sector.
The financial organisation has announced that the outlook for the coming 12 to 18 months in the country has gone from stable to negative.
A number of factors have prompted the change, with greater enforcement of government tightening measures expected to put downward pressure on both values and transaction volumes in the long-term in China.
"We believe this will inevitably lead to slowing sales and pressure on profit margins and on balance sheet liquidity for some," says Peter Choy, a senior vice-president at Moody's office in Hong Kong and lead author of the report.
Indeed, Moody's predicts that proceeds accrued from contracted sales of residential properties will decline by an average of 25 per cent to 30 per cent in China's first tier and most of its second tier cities.