Moody's Investors Service has changed its outlook on China's residential property sector to stable from negative. This comes on the back of improved sales nationwide after new government policies were launched to boost the housing market.

The rating agency expects modest growth in the next 12 months. It is predicting a rise of up to 5 percent in the value of property sales in China by June, 2016, compared with a decline of 7.8 percent in 2014.

"Moody's is changing its outlook for China's property sector to stable from negative -- which had been effective since May, 2014 -- to reflect our improved expectations for the industry's fundamental business conditions over the next 12 months," Kaven Tsang, a Moody's vice-president and senior analyst, said on the release of the agency's report on Tuesday.

Last year, Moody's predicted a static, or negative, sales growth in 2015.

But this latest report has highlighted the government's new policies to boost sales in the next 12 months. Measures include more mortgage options and reduced down-payments as well as helping buyers to finance second homes with bank loans.

Moody's findings were released as residential property sales in May hit a record high.

According to the China Index Academy (CIA), the largest independent property research organization and part of SouFun Holdings Ltd, total sales in terms of floor space increased in 38 cities in May. They climbed by 14.6 percent to 24.6 million square meters compared to April and 37.3 percent year-on-year.

Sale in first-tier cities jumped 83 percent in May to 4.69 million sq m compared to the same period last year. Sales in second-tier cities climbed 25 percent to 15 million sq m year-on-year and in third-tier cities the figure increased by 49 percent to 4.8 million sq m.