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Research Announcement:

Moody's revises outlook on China's property sector to negative on tightened funding access

 The document has been translated in other languages

02 September 2021


Hong Kong, September 02, 2021 --

  • Constrained funding access due to tighter regulations drives outlook change to negative on China's property sector
  • Developers' property sales, liquidity and cash flows will dampen, raising refinancing risks

China's (A1 stable) property developers' access to onshore bank and trust loans, and onshore and offshore bond markets will remain tight during the coming six to 12 months, underpinning the change in the industry outlook to negative from stable, said Moody's Investors Service in a new report. Funding access is one of the three indicators, in addition to sales and inventory, that Moody's uses to determine the industry outlook.

"China's regulations aimed at controlling property prices and sector leverage, as well as containing the banking system's exposure to property market, have curbed developers' funding access. Property sales, liquidity and cash flows will drop, raising refinancing risks particularly for financially weak developers. Meanwhile, lenders and investors will continue to favor medium-to-large financially sound developers," says Cedric Lai, a Moody's Vice President and Senior Analyst.

Guidelines that took effect in January 2021 limiting banks' exposure to the property sector are reducing developers' access to loans for construction and homebuyers' access to mortgages for home purchases. Loan growth to developers slowed in the first half of 2021 to its lowest level in recent years. In addition, interest rates and approval times for mortgages have increased since the second quarter of 2021. These factors are reducing home sales and developers' associated cash flow.

Bond issuance is also slowing. Onshore and offshore bond markets have become volatile in recent months for Chinese property developers following defaults such as those by China Fortune Land Development Co., Ltd. and Sichuan Languang Development Co., Ltd. These factors, combined with quotas on developers' onshore and offshore bond refinancing, will continue to limit their issuance.

Meanwhile, Moody's expects national contracted sales to decrease 0%-5% during the coming six to 12 months (trailing 12-month average), driven by declining sales volumes and slowing average sales price growth. The sales decline also reflects the high base of comparison in the second half of 2020.

Subscribers can access the report "Property – China: Outlook turns negative on tightened funding access" at: http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1299184

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.

Cedric Lai
VP-Senior Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS : 852 3758 1350
Client Service : 852 3551 3077

Franco Leung, CFA
Associate Managing Director
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS : 852 3758 1350
Client Service : 852 3551 3077

Releasing Office :
Moody's Investors Service Hong Kong Ltd.
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JOURNALISTS : 852 3758 1350
Client Service : 852 3551 3077

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