Policy tightening in China’s property sector is unlikely to end anytime soon and the operating environment will be very challenging for developers in the next 6-12 months, Moody’s say. Since more than 45 cities have rolled out stricter home-buying polices in the past few months to curb speculation, sales volumes are expected to drop while inventory levels will increase – with smaller developers particularly exposed to risks. “Land prices continue to be high and only the more financially strong developers will be able to afford the high land prices,” said Moody’s vice president and senior credit officer Franco Leung. “Smaller and financially weak developers will find it increasingly difficult to compete with bigger ones.” The ratings agency said it has already seen some smaller developers short of liquidity making asset sales to larger ones, a trend it believes will continue. National contracted sales growth by value is expected to be slightly negative through to May 2018 against the high year-on-year growth of 36 per cent achieved for the full year 2016. The outlook for the property market overall is stable, said Moody’s. Although Chinese regulators have shut down the onshore bond issuance channel for developers, the offshore bond market and bank financing is still available to developers with good credit quality, it added. Land prices continue to be high and only the more financially strong developers will be able to afford the high land prices Franco Leung, Moody’s vice president The tightening cycle began in October 2016, but the market-cooling efforts seem to have had little dampening impact on rising home prices. In March, 62 out of 70 major cities tracked by the National Bureau of Statistics saw month on month home price increases, compared with 56 in February. Prices rose 0.4 per cent in Beijing and declined 0.1 per cent in Shanghai. “The March price indices showed price growth rebounding across the board, indicating why so many cities, including lower tier cities, have introduced additional measures to control price growth,” said James Macdonald, head of China research at Savills. In the past two months, a number of big cities and some overheated small cities have further raised down payment requirements, limited the number of homes each family can buy, and banned non-locals from buying a house locally to heed President Xi Jinping’s message that “houses are for living in, not for speculating”. In the latest move on Tuesday, Ningbo, a coastal city in Zhejiang province, raised the minimum down payment for a first home to 30 per cent from the previous 20 per cent – a rule that applies to its three main districts. In addition, non-local residents are now required to work in Ningbo for at least one year to be eligible to buy a home in the same area. Moody’s Leung said local governments may again upgrade regulatory measures if the market continues to be overheated. But selling prices are unlikely to drop in higher-tier cities even if the pace of sales growth slows.