(Hong Kong) Rating agency Moody’s on Thursday downgraded the rating outlook for China’s real estate sector from “stable” to “negative”, due to the impact of slowing growth on sales.

Sales are expected to contract by around 5% over the next six to 12 months, according to the agency, which believes the Chinese government’s support measures for property purchases will only have a “short-lived” impact.

On Thursday, the Chinese central bank reduced a benchmark ratio, the mandatory reserve ratio (RRR), which represents the share of deposits that banks are required to keep in their coffers, to try to revive activity.

This measure aims to “push banks to lower rates on existing mortgage loans” in a context of real estate crisis, noted economist Larry Hu of the Macquarie investment bank.

This is the third benchmark rate cut in the space of a month.

The situation in the real estate sector, with its share of developers on the verge of bankruptcy and unfinished housing, is a major obstacle to growth.

For Moody’s, fears linked to the financial difficulties of Country Garden, one of the largest Chinese real estate developers, have “amplified the risk aversion of home buyers”.

The developer, long considered solid, has been overtaken in recent months by the real estate crisis in China, which now threatens the survival of many players in the sector.

At the beginning of September, the developer, who was at risk of default, repaid $22.5 million in interest on loans at the last minute.

Any unpaid debt would send a shock wave through the markets and plunge a real estate sector already scalded by the health crisis and the economic slowdown in China further into the doldrums.

The massive debt of real estate groups in China has been perceived in recent years by those in power as a major risk for the country’s economy and financial system.

Beijing has thus gradually tightened their conditions of access to credit from 2020, which has dried up their sources of financing.

A wave of payment defaults followed, notably that of the Evergrande group, which undermined the confidence of potential buyers and had repercussions on the entire sector, against a backdrop of economic slowdown.

According to Moody’s, “regions with weaker economies will contribute most of the expected sales decline, particularly due to continued population exodus.”