Going gets tough for property developers

China's property developers face a tough time over the next 12 to 18 months with rising operating uncertainties and tight credit, according to Moody's Investors Service.

"Contractions in sales volumes, price declines and land purchases in the first half of the year have caused balance-sheet liquidity and financial profiles to deteriorate to such an extent that we have had to take various negative rating actions over the past six months," said Kaven Tsang, an analyst with the ratings firm.

Moody's found tight funding, weak demand, and shrinking cash buffers on developers' balance sheets.

Tsang said some developers had been selling assets and equity interests in projects to raise cash and improve their liquidity, but opportunities for doing so have diminished.

Potential overseas investors such as property funds have had to repatriate money to the United States amid a credit crisis that has starved them of capital, the firm said.

"As developers complete projects now under construction, the resulting rise in the supply of new housing will further depress the market," said Peter Choy, a Moody's senior credit officer.

To stabilize the market, China's central government has announced moves to implement tax cuts and relax restrictions on mortgages in addition to moves by local governments to encourage home purchases.