Hong Kong, October 31, 2017 -- Moody's Investors Service says that China's push to develop
its residential rental market will unlikely affect sales for property
developers over the next 6-12 months, because of the general
desire of the Chinese to own their homes.
"The government's push to speed up the development of the
country's residential rental market will have mixed implications
for property developers," says Kaven Tsang, a Moody's
Vice President and Senior Credit Officer.
"While rental homes will provide the developers with recurring and
more diversified revenue, investment in greenfield residential rental
projects will increase their funding needs and debt leverage,"
adds Tsang.
Nevertheless, large scale developers with strong balance sheets
and lower funding costs will likely benefit from investments in greenfield
residential rental projects.
Moody's analysis is contained in its just-released report
titled "China Property Focus: Tight regulation continues to slow
sales growth".
Moody's report explains that the new rental market measures are
part of a plan to improve affordability and stabilize home prices in the
medium to long term.
And, the development of the residential rental market in China will
require continued government support to ensure the long-term effectiveness
of aims such as cheaper land prices, facilitating funding channels
and investment capital recycling, and promoting equal rights for
owners and tenants.
As for residential sales, monthly contracted sales in September
2017 fell 2.4% year-on-year — the first
monthly sales decline in 2017 — due to the continued tight regulatory
measures imposed by the government in various cities and the high sales
base achieved in September 2016.
As a result, nationwide contracted sales growth slowed further to
11.4% year-on-year for the nine months between
January and September 2017 from 14.2% for the eight months
between January and August 2017. Moody's expects that this
slowing growth trend will continue, because government controls
will remain tight.
Moody's report says that the Chinese government's tight property
control measures have been effective in muting property price growth.
Residential property prices in China's four Tier 1 cities fell 0.2%
month-on-month in September 2017, but the decline
was moderately slower than the 0.3% recorded for August
versus July.
For Tier 2 cities, the month-on-month price growth
grew slightly to 0.2% in September from 0.1%
in August. But for lower-tier cities, average month-on-month
price growth fell slightly to 0.3% in September from 0.4%
in August.
Moody's says that overall inventory levels are healthy and manageable,
although inventory in Tier 1 cities rose slightly to 13 months in September
2017 from 12 months in August 2017, mainly because sales in these
cities are suppressed by tight regulatory controls.
Meanwhile, inventory levels in the 11 Tier 2 cities that Moody's
tracks stayed largely stable at eight months in September 2017.
A total of 15 developers (27.8% of Moody's-rated
Chinese property developers) had negative rating outlooks as of 27 October
2017.
Moody's expects the number of negative outlooks to decline modestly
in the next 6-12 months, because the credit profiles of certain
rated developers will improve, supported by strong sales,
improving margins and lower funding costs.
Subscribers can access the report at
https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1096838
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:
• 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
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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.
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
Simon Wong
Associate Managing Director
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