Hong Kong, March 14, 2017 -- Moody's Investors Service says that Chinese developers will face
increasing competition, after the Chinese government (Aa3 negative)
stressed during the National People's Congress in early March 2017
that it would strengthen the execution of its differentiated policies
in the country's property sector, and fine-tune measures
in cities where property prices are rising rapidly.
"Chinese developers will face stronger competition in 2017,
as large developers strive to capture further market share, amid
the ongoing regulatory controls and likely slowdown in sales growth,"
says Chris Wong, a Moody's Analyst.
Moody's believes that control measures in cities where property
prices are rising rapidly will remain tight or become even tighter in
2017, whereas policies in lower-tier cities where inventory
is high will remain accommodative.
"Nevertheless, most of the developers that we rate will demonstrate
healthy credit profiles, given their stronger sales execution and
more diversified funding channels," adds Wong. "These
strengths will put them in an advantageous position when compared to their
smaller unrated peers."
Moody's analysis is contained in its just-released report
titled "Property -- China: Chinese Developers Face Increasing
Competition Amid Differentiated Government Policies".
Moody's report points out that the Chinese government's latest
work report outlines the fact that the authorities will support end-user
demand in third- and fourth-tier cities, where inventory
levels are high. At the same time, the government will also
increase land supply and fine-tune controls on the development,
marketing and agency activities in cities showing overheated prices.
While the effects of increasing land supply will take time to realize,
Moody's believes governments in first- and major second-tier
cities will maintain or even tighten their restrictive measures to curb
investment or speculative demand for properties, and to prevent
an overheating of prices.
Moody' points out that the latest round of restrictive measures
introduced since late September 2016 has moderated property price growth
in high-tier cities in recent months.
Moody's also estimates that the effects of policies targeted at
clearing inventory in lower-tier cities with high inventory levels
will be mixed, because some low-tier cities will continue
to show weaker economic fundamentals and net population outflows.
Overall, Moody's report says that developers rated by Moody's
will likely extend their gains in market share in this challenging and
competitive environment, supported by their stronger brands and
execution abilities. Contracted sales for 29 rated developers rose
to 26.5% of total nationwide contracted sales in 2016 from
24.0% in 2015.
As for funding conditions, issuance in the onshore bond market will
become more selective and slow versus the levels seen in 2016.
For example, there were only four onshore bond issues totaling RMB5.3
billion by Moody's-rated developers in the first two months
of 2017 compared to 26 issues totaling RMB81.5 billion during the
same period last year. Nevertheless, the impact on Moody's-rated
developers will be manageable, because of their diversified access
to offshore funding.
Offshore bonds issued by 13 Moody's-rated developers totaled
USD4.7 billion in the first two months of 2017 as against USD1.5
billion issued by three rated developers in the same period last year.
Subscribers can access the report at
https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1063348
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: Mid- and Small-Sized Banks'
Higher NCD Levels Pressure Profitability, Widen Funding Mismatches
• Auto ABS - China: Delinquencies Will Remain Low Through
2017 After Declining in Q4 2016
• China's Coordinated Approach to Regulating Investment Products
Would Be Credit Positive for Banks
• Default Report: Default Rate for Asian Non-Financial
Corporates Expected to Remain Low in 2017
• Coal -- China : Government measures will drive coal
prices lower but strong enough to support miners' credit profile
• Rated High-Yield Non-Financial Companies --
China: Most Companies Could Manage 10% Renminbi Depreciation
vs US Dollar in 2017
• Securitization -- China: Sector Update -- Q4 2016:
Auto ABS and RMBS Performing Well as Issuance Grows
• China Government: Local Government Incentives Hinder Central
Government Reform Agenda
• Quarterly China Shadow Banking Monitor
• Life Insurance - China: Credit Profiles Under Pressure
From Shifting Investment Allocation
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for the most updated credit rating action information and rating history.
Chris Wong
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.)
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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.
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JOURNALISTS: (852) 3758 -1350
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