S&P slashed the rating of China's second biggest developer by sales by a hefty three notches to BB+ from BBB+, leaving it one rung into 'junk' territory, or 'non-investment grade' as it is also known.

It blamed the downgrade on Vanke's "weakening competitive position and surging leverage" and put the new rating straight on a "negative outlook" again.

While Vanke is expected be able to make its debt payments this year, S&P warned its sales could continue to fall over the next 12 months due to the ongoing slump in the Chinese property market.

"We believe that weakening contracted sales and margins will undermine China Vanke's competitive position," S&P said, estimating the firm's "contracted sales" would drop to 270-280 billion yuan ($37.3-$38.1 billion) on a total basis in 2024-2026, down 25%-28% on last year and by 60% from 2020's peak level of 704 billion yuan.

S&P put the firm on downgrade warning last month, just days after Moody's became the first to cut the developer into the junk category. Fitch followed suit less than a week later.

S&P's downgrade on Wednesday also saw it chop the rating on China Vanke's subsidiary, Vanke Real Estate (Hong Kong) to 'BB' from 'BBB' and lower the issue rating on Vanke HK's senior unsecured notes to 'BB' from 'BBB'.

($1 = 7.2340 Chinese yuan renminbi)

(Reporting by Marc Jones; editing by Christina Fincher)