In the report titled "The Worst Is Yet To Come For Chinese Developers In Asia's Shaky Property Sector," S&P warned that more credit downgrades are likely in the next six months.

"Many developers in China may be at increased risk of refinancing due to weaker property sales, high funding costs, and tightened liquidity. And that will increase the pressure on ratings," S&P credit analyst Bei Fu said in a news release.

The company in the past month downgraded Yanlord Land Group, Coastal Greenland, Yuzhou Properties and Zhong An Real Estate. The rating agency says small developers that are highly concentrated in certain cities and projects are vulnerable to policy risk while bigger, diversified developers stand to benefit.

"Some small and mid-sized companies may find it increasingly hard to maintain their competitive positions when lenders and investors turn cautious on higher-risk credits," the agency stated. "But large and well-capitalized developers will continue to grow by acquiring land at now deflated land prices and accessing funding."

Standard & Poor's predicts that China's home prices could drop 10 percent between June 2011 and June 2012. Sales volume is likely to be flat at best or slip this year, the agency said.

That poses a problem for cash-strapped developers that have found their access to bank loans curtailed. Many have turned to expensive short-term credit such as trust loans. S&P said refinancing risks for developers are rising thanks to higher bank borrowing costs and high yields in the bond market.

Although sales for larger developers are generally strong in February, analysts say they have yet to see clear signs of improvement in the industry [ID:nL4E8E80PR].

Home prices in China fell in February for the sixth straight month, according to a private survey, as two years of government measures to curb property speculation hit home [nL4E8E13JJ].

Slower property investment is likely to cut into growth for 2012 in the world's second-biggest economy [ID:nL3E8CJ035].

For more news on China's property market and the risks that the sector slowdown poses to the broader economy, see

(Reporting by Asia Economics and Markets Desk and Alex Frew McMillan in Hong Kong; Editing by Sanjeev Miglani)

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