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Slowdown for homes seen longer
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MOODY’S latest report forecasts that the current slowdown in housing demand in China will last longer than the two previous occasions due to the ongoing economic rebalancing and high inventory.
“We expect the current slowdown to last longer than the down cycles in 2008 and 2011 as the government is unlikely to completely remove home purchase restrictions,” said Franco Leung, assistant vice president of Moody’s.
In addition, onshore credit and liquidity conditions are unlikely to be loosened, and economic growth may continue to slow, Leung said.
In his view, the two previous down cycles were preceded by significant credit tightening, regulatory measures, wider implementation of home purchase curbs and external macro shocks.
But housing demand was subsequently boosted by stimulus measures and material loosening of credit conditions and liquidity.
“Even if home purchase restrictions are removed in certain cities, such a measure is unlikely to spur material additional demand unless it is accompanied by increased availability of bank credit to the sector and a reduction in mortgage rates,” Leung said.
The report said that most of Moody’s 52 rated developers will slow their pace of land acquisition as their primary objective is to preserve liquidity.
Profit margins should stabilize for most rated developers in 2014 as they recognize pre-sales when prices were strong during the second half of 2012 and all of 2013.
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