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Announcement:

Moody's: China property outlook for 2016 stable, but growth in nationwide property sales will slow

 The document has been translated in other languages

02 Nov 2015

Hong Kong, November 02, 2015 -- Moody's Investors Service says that its outlook for China's property sector remains stable through 2016, but growth in nationwide property sales will slow compared with levels achieved in 2015.

"We expect a modest 0%-5% year-over-year growth in the value of nationwide property sales in 2016," says Franco Leung, a Moody's Vice President and Senior Analyst. "By contrast, growth in nationwide property sales should exceed 10% for full year 2015, as the effect of the supportive monetary and regulatory policies implemented by the government is mostly reflected in year-to-date sales of 2015."

The lower growth for 2016 also reflects a higher base of comparison in 2015.

According to China's National Bureau of Statistics, national contracted sales grew strongly year-over-year, at 18.2% in the first nine months of 2015, reaching RMB4.79 trillion. The growth was driven by the accommodative policies implemented by the authorities since the second half of 2014.

"We expect that the Chinese government will continue to implement supportive monetary policies and fine tune regulatory measures for the property sector, against the backdrop of a slowing Chinese economy," adds Leung.

In particular, Moody's expects that a further loosening in regulatory measures for the property sector, if any, will focus on lower-tier cities where demand remains weaker than for first-tier cities.

At the same time, Moody's expects inventory levels in first- and second-tier cities will remain between nine to 13 months and below the recent peak of 15 months seen in March 2015 given the improved property sales and subdued new supply on the back of weak new construction starts. Cumulative national new residential construction starts in the first nine months of 2015 fell 13.5% year-on-year.

Moody's says that the lower inventory levels will continue to support property prices in first- and second-tier cities.

Moody's also points out that 39 of the 70 major cities in China reported month-on-month price increases in September 2015, up from 35 in August 2015, and that first-tier cities have been leading the price recovery.

While prices in lower-tier cities will remain under pressure in 2016, such pressure should ease from the sharp falls seen during the second half of 2014.

Moody's expects that developers' access to funding will remain healthy, driven by benign onshore lending conditions.

As for the recent surge in domestic bond issuance - $28 billion year to date as of 30 October 2015 versus $1.9 billion for full-year 2014 - such a situation will help developers strengthen their liquidity profiles, lengthen their debt maturities, lower their borrowing costs and diversify their funding channels.

However, Moody's expects that the profit margins for developers that it rates will remain at the current low levels of 27%-28% following declines in recent years, and debt leverage as measured by revenue to adjusted debt will remain largely stable.

The developers' execution capabilities will be crucial in determining their long-term business viability. Moody's expects that small developers with weak sales execution and liquidity levels will be taken over or exit the industry over time.

Moody's would consider changing the outlook for China's property sector back to negative if Moody's expects a sustained decline of more than 5% in national contracted sales over the coming 12 months, or if the inventory to contracted sales ratio nears its March 2015 peak of 15 months, or if the developers' liquidity profiles deteriorate, owing to an interruption in their access to the onshore and offshore markets.

By contrast, Moody's would consider changing the outlook to positive if Moody's expects sustainable sales growth of 5%-10% over the coming 12 months, or if the inventory to contracted sales ratio trends below 2013 levels of 7-8 months, and the developers maintain their stable access to various types of funding sources.

Moody's subscribers may access this report "2016 Outlook - China Property: Supportive Government Policies Drive Modest Sales Growth" here: http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_185514

The report may also be found through this link to Moody's topic page titled China — Reform and Rebalancing: http://www.moodys.com/chinarebalancing.

The topic page provides subscribers with a centralized source for Moody's research related to key credit issues in China, as the country's rebalancing story unfolds.

Recent Moody's publications relating to China Reform and Rebalancing include:

- China's Rates and Reserve Requirement Cuts Are Credit Positive for Banks

- Regional and Local Governments: Falling Land Sales to Weaken Chinese RLGs' Credit Profile

- China Property Focus — October 2015

- Inside China

- Chinese Banks: China's Latest Rate and RRR Cuts Are Positive for Banks' Liquidity

- Property — China: Developers' Increasing Use of JVs Lowers Corporate Transparency

- Asset Managers Get a Boost from China Access

- Chinese Auto ABS: Delinquencies Stable in Q2 2015, but Likely to Increase Slightly

- Slower Growth and Rising Credit Risk Are Symptoms of China's Challenge of Structural Rebalancing

- Chinese Banks — Latest Results and Performance Trends

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Franco Leung
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Moody's: China property outlook for 2016 stable, but growth in nationwide property sales will slow
No Related Data.
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