Hong Kong, November 06, 2017 -- Moody's Investors Service says that its outlook for the residential
property sector in China (A1 stable) is stable through 2018, but
protracted and tight government controls will continue to pressure business
conditions for property developers.
"National contracted sales — on a 12-month moving average
basis — will likely see a slight decline (by up to 5%) for
the six months to 31 December 2018, following an estimated growth
of 7%-10% for full year 2017, says Kaven Tsang,
a Moody's Vice President and Senior Credit Officer. "Nevertheless,
such a result would still fall within the parameters of our stable outlook
for the sector."
Moody's expectation of a fall in national contracted sales for 2018
is mainly driven by lower sales volumes, due to the ongoing tight
regulatory controls in China's major cities, and weaker sales
in lower-tier cities, after these lower-tier cities
have shown strong sales growth in 2017.
"Overall inventory levels will stay healthy and manageable,"
adds Tsang. "The inventory to contracted sales ratio in second-
and lower-tier cities will unlikely reach the peak seen in March
2015, and, while funding to the sector is still restricted,
financially healthy developers will maintain access to funding."
Moody's conclusions are contained in its just-released report
on the outlook for the Chinese property sector through until the end of
2018, and is authored by Tsang.
Moody's report further says that prices in major Chinese cities
will be constrained by the government's controls on the selling
prices for new homes. Nonetheless, a material price correction
is unlikely, because of the healthy levels of inventory and strong
mass market demand.
Moody's says government controls in major Chinese cities will remain
tight, and other cities that demonstrate rapid price growth will
likely see a further tightening of measures on a selective basis,
aimed at deterring speculation and investment activities. Nevertheless,
the implementation of more severe measures nationwide is unlikely,
because overall property-price growth has been slowing since June
2017.
Moreover, the government's directive to develop the rental housing
market will limit the growth in property prices, because the aim
is to ensure more stable prices. While property companies can develop
a source of recurring revenue through rents, leased properties generate
less cash flow for developers when compared to properties for sale,
so small developers, in particular, will see their credit
metrics and liquidity profiles weaken, if they take on rental projects.
Tight controls over mortgages and onshore bond issuance since early 2017
will constrain cash collection and funding availability for developers.
However, Moody's believes developers with good credit quality
will maintain healthy access to bank loans. Certain developers
can also access the offshore bond market, subject to regulatory
approval.
Most Moody's-rated Chinese property developers show adequate
liquidity buffers to manage higher bond refinancing risk, in respect
of the $40 billion in offshore and onshore bonds which will mature
or be puttable in 2018.
As for the industry as a whole, Moody's points out that the
sector will continue to consolidate, with the challenging operating
environment creating merger and acquisition (M&A) opportunities for
large and financially healthy developers, as small and financially
weak players are forced out of the sector. Moody's says that
M&As could allow developers to acquire land plots at lower cost when
compared with open auctions.
Subscribers can access the report at:
http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1099078
The report may also be found through Moody's topic page "China's Trilemma:
Growth, Reform and Stability", available at http://www.moodys.com/chinarebalancing.
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:
• China Credit: Party Congress policy agenda is generally credit
positive; challenges remain
• China Property Focus: Tight Regulation continues to slow
sales growth
• Banks — China: Improved asset quality and funding profile
in the first half, but weakened profitability
• China's Belt and Road Initiative: BRI report card:
Positive factors outweigh negatives for China and recipient countries
• Property — China : Most rated developers have capacity
to manage higher bond refinancing risk in 2018
• Government of China -- A1 Stable: Regular update
• Securitization — China: Sector update — Q2 2017:
Issuance volumes up; auto ABS performing well
• China's Plan to Tighten Regulation of Negotiable Certificates of
Deposit Is Credit Positive for Banks
• Mass Transit Sector — China : Strategic importance
underpins credit profiles; Heavy capex remains
• NPL Securitization — China: Chinese NPL deals show
solid performance, but short history clouds future
• Internet companies — China: Finance operations weaken
credit quality; most companies have mitigants
• Cross-Sector — China: Reduced Credit Intensity
of Growth Key to Achieving Policy Objectives
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 [email protected] 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.
Kaven Tsang
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
Client Service: 852 3551 3077
Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 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
Client Service: 852 3551 3077