Hong Kong, May 10, 2016 -- Moody's Investors Service says that national contracted sales growth
in China's residential property market will slow over the next 12
months, but remain healthy.
"Inventory levels in first- and second-tier cities
will rise slightly over the next 12 months because of an increase in new
housing starts and our expectation of a slowdown in sales growth,
but will remain close to the low levels recorded in 2013,"
says Franco Leung, a Moody's Vice President and Senior Credit
Officer.
"Property developers will also maintain stable funding access during
this period, which will support their liquidity," adds
Leung. "But the slowing sales growth and increasing competition
among developers, particularly in higher-tier cities,
means that profit margins will remain under pressure."
Moody's analysis is contained in its recently-released report
titled "Property -- China: Outlook Is Stable but Margin Pressure
Continues amid Rising Competition," and is co-authored by
Leung and Dylan Yeo, a Moody's Analyst.
Moody's report says that year-on-year sales growth
should moderate to a single-digit percentage for the 12 months
ending May 2017 from 16.6% in 2015, and 28.4%
for the 12 months ended March 2016. These projections reflect the
high base of comparison against 2H 2015 and 1Q 2016, when stimulus
measures spurred strong sales growth.
Moody's also expects limited benefits from any further stimulus
measures, while selective regulatory tightening in some higher-tier
cities with rapid price growth will reduce property demand in those cities.
Moody's says regulatory measures will likely remain broadly supportive,
and focus mainly on lower-tier cities where inventory risks are
still high, as the government seeks to support a more balanced development
across China's property market.
While inventory levels in lower-tier cities have fallen from the
peak in early 2015, Moody's expects such levels to remain
elevated.
On the issue of funding, Moody's says funding conditions for
the sector will generally remain supportive. The sector's
overall liquidity will likely remain adequate, benefiting from strong
sales collection in recent months, the opening of the domestic bond
market to developers, and manageable refinancing needs over the
next 12 months.
As for the high proportion of negative outlooks for the 50 Chinese property
developers that Moody's rates, Moody's says this situation
is driven mainly by company-specific issues.
The proportion of Moody's-rated developers with negative
outlooks or under review for downgrade hit 44% on 6 May 2016—one
of the highest levels since 2012—owing largely to company-specific
challenges such as debt-funded growth or acquisitions, major
business transformations, large refinancing needs, or weak
operating models.
Moody's also says the rising land prices in higher-tier cities
and the ongoing destocking in lower-tier cities will result in
continued pressure on the developers' profit margins, although
the recent price run up in certain cities will partly alleviate that pressure.
Overall, Moody's expects that the credit metrics of developers
that Moody's rates will stabilize in 2016 but remain weak.
Subscribers can access the report at:
http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1026302
The report may also be found through Moody's topic page titled:
China's Trilemma: Growth, Reform and Stability.
This page provides a centralized source for Moody's research related to
key credit issues in China as the country's macroeconomic story continues
to unfold.
Recent Moody's publications relating to China's Trilemma include:
• Quarterly China Shadow Banking Monitor
• China Property Focus — April 2016
• Inside China — April 2016
• Chinese Non-Property Companies: Credit Quality Continues
to Diverge on Slower Economic Growth
• China Credit Market: China Railway Materials' Debt
Restructuring Points to Increasingly Differentiated Government Support
• Property — China: 2015 Results Indicate Rated Portfolio's
Credit Quality Will Remain Weak in 2016
• Chinese Diversified Technology Sector: Resilient Amid China's
Economic Rebalancing
• Chinese Banks: 2015 Results Show Continued Pressure on Asset
Quality and Profitability
• Regional and Local Governments — China: Assessing the
Standalone Credit Profiles of Lower-Tier Chinese RLGs
• Property — China FAQ: Five Developers Vulnerable to
Losing Investment-Grade Ratings
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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
VP - Senior Credit Officer
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:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
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Moody's: China property outlook stable, but margin pressure continues amid rising competition