Moody's revises China property outlook to negative

By Cherry Cao | May 21, 2014, Wednesday |

Online Edition

MOODY'S Investors Service revised its outlook for China's property market to negative from stable, adding it expects a notable slowdown in home sales growth in the next 12 months.

Moody's said in its latest property industry outlook that high inventory levels and weakening liquidity will contribute to the slowdown in sales growth. It added that rated developers with large-scale operations, prudent financial management and good liquidity will be better positioned to withstand the challenging conditions.

"We expect modest 0 to 5 percent year-over-year growth (on a 12-month trailing basis) over the next 12 months," said Franco Leung, a Moody's assistant vice president and analyst. "This growth rate is materially lower than the 26.6 percent year-on-year rise in nationwide cumulative contracted sales in full year 2013."

The weaker sales growth for the sector is driven mainly by tighter onshore liquidity, higher mortgage rates, expectations property prices will fall and slower GDP growth, according to Moody's.

New home sales in China declined at a faster rate in the first four months of this year by both value and volume, the National Bureau of Statistics said last week. The value of new homes dropped 9.9 percent, while by volume it fell 8.6 percent during the January-April period, the bureau's data showed.

And strong new housing starts in recent years have increased inventory levels, which will remain high given the slower sales growth.

Inventory in the eight first- and second-tier cities tracked by Moody's was about 14 months at the end of April, approaching the previous high of about 16 months in February 2012. Such high inventory levels will weaken developers' pricing power, squeeze working capital and dent profit margins, Moody's said.

Real Estate

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Moody's revises China property outlook to negative

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