Slowdown in property sector 'manageable'

The effects of a sharper downturn in the property sector for China's economy would be marked but manageable, according to a Moody's Investor Service report.

A deeper property downturn could shave between 1.5 and 2 percentage points off China's GDP growth in the absence of an off-setting policy response. However, the central government has room to maneuver without the sovereign rating coming under pressure and would respond to a slowdown of that magnitude, according to Michael Taylor, a Moody's managing director and author of the report.

In an attempt to estimate the possible economic and credit effects of a deeper-than-expected property downturn, Moody's developed two scenarios. One included a 10 percent drop in property sales volume for this year and next, a level of decline seen in previous slowdowns. The other looked at a drop in transactions coupled with a 10 percent decline in property prices, not typical of previous downturns.

The report said relatively low household indebtedness and high capitalization would limit the effects of a sharper property downtown. It added the low amount of non-performing loans would likely keep things from getting worse while rated banks would also receive substantial government support if needed.