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
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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
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Gary Lau
MD - Corporate Finance
Corporate Finance Group
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Releasing Office:
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Moody's: China property outlook for 2016 stable, but growth in nationwide property sales will slow