China's property companies will face only a moderate correction amid Beijing's move to curb rising prices, as they have strong financial status, Moody's Investors Service said Tuesday.
"While there has been some asset inflation after 18 months of price growth, only moderate downward price corrections are highly likely in 2011," Moody's said in a report. "But, investors and developers still have on hand the financial means required to respond to near-term corrections of such a degree."
The credit appraiser maintained a stable outlook for the China property sector, saying the outlook reflects its expectations for the next 12 to 18 months.
Since the second half of 2009, the Chinese government has been focusing on taming surging property prices, which have been fueled by excess
liquidity from its stimulus program, reduced supply coming from austerity actions in late 2007, and the lack of viable alternative channels for savings, Moody's explained.
"Although the regulations implemented to deal with the price rises are beneficial to the sector over the long term, their full effects will take
time to be felt as wider interests are at stake," it said.
Beijing had maintained for about two years expansionary fiscal and loose monetary policies introduced during the global economic slowdown. In late 2008, the government pumped 4 trillion yuan (US$590.2 billion) into the market to counter the global crisis.
The People's Bank of China, the central bank, raised the deposit reserve requirement ratio for its major banks earlier this month to curb escalating inflationary pressure. The ratio refers to the percentage of customer deposits that banks are required to set aside in cash.
On Oct. 19, the central bank announced a surprise 0.25 percentage point hike in its benchmark one-year lending and deposit rates, also aimed at fighting inflation.