Moody’s cuts China’s residential property outlook

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Moody’s Investors Service on Thursday lowered its view on China’s property sector, warning that a slowdown is underway with credit conditions forecast to tighten over the next 18 months.

However, the ratings agency stopped short of affirming the view of some economists that conditions are ripe for a perfect storm that would slam the sector.

Earlier today, I asked Is China’s hard landing already happening? It is early days, says Moody’s so they don’t see this yet but they are more cautious about growth in China going forward. House prices are coming off the boil and transaction volumes are slumping. That doesn’t necessarily mean that a crash is imminent. Moreover, the house price drop in Beijing is due to changes in property regulations that were recently instituted. We would have to see more evidence of a widespread slowdown in prices and transactions before we know that a crash is happening.

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My guess is that if property prices do drop dramatically over the next two or three months, the Chinese will pull back from their inflation fighting stance somewhat and loosen credit conditions. At that point, we would have to see what that means for inflation and food prices for the ordinary worker in China. That’s the Scylla and Charybdis flation challenge Central Banks will face for years.

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