HONG KONG, March 9 (Reuters) - Standard & Poor's raised its forecast for China's property sales and prices on Wednesday, predicting they would rise by 5-10 percent this year on stronger-than-expected government support for the market, which has been dragging on the broader economy.
But it added that competition for land in top-tier cities could intensify, eroding developers' profit margins.
S&P had previously forecast growth in property sales by value and average selling prices in 2016 would be flat to 5 percent this year.
The credit rating agency also raised its forecast for sales volume from flat to up to 5 percent growth.
S&P sees moderate growth in property investment from rated developers this year, in contrast to nationwide property investment, whose growth cooled to just 1 percent in 2015, the slowest in nearly seven years even as national sales improved.
Some analysts believe property investment will likely fall this year as developers slow new construction due to a glut of unsold homes.
"Developers who picked up destocking will (now) need to speed up construction as the government continues to support the sector," S&P corporate ratings director Cindy Huang said in a conference call with reporters.
But she warned of credit risks for developers as they step up land acquisitions and construction.
"Land costs in first-tier cities are increasing significantly. Developers buy this expensive land as they expect home prices to increase, but once the government starts to taper price growth, it will be a significant risk."
Fuelled by a series of government support measures, China's home prices rose 2.5 percent nationwide in January from a year earlier but have shot markedly higher in the country's biggest cities, with prices in Shenzhen up nearly 52 percent.
The Shanghai Securities News on Wednesday quoted central bank vice governor Pan Gongsheng Pan as saying the central bank, banking regulator and the housing ministry are studying measures to address rising housing prices in tier one cities.
Land minister Jiang Daming said later on Wednesday that China will boost land supply appropriately in cities where prices rise quickly.
Huang added that refinancing risk for developers was low as onshore funding conditions improve, and she expected possible defaults in the next 12 to 18 months to be lower. (Reporting by Clare Jim; Editing by Kim Coghill)