Moody's: China property outlook stable

Moody's Investors Service said in a report on Wednesday that the outlook for China's property market remains stable but sales growth will slow.

Those developers focused on the mass-market, including China Overseas Land & Investment, China Vanke Co, Longfor Properties Co, Country Garden Holdings Co and Shimao Property Holdings, will enjoy the strongest level of sales, Moody's said.

"Moody's stable outlook reflects our expectation for around 10 percent year-on-year growth in the value of residential property sales over the next 12 months, in line with the average seen in 2012, but down from the high levels seen during January-March 2013," said Kaven Tsang, a Moody's vice-president.

"Our view is that urbanization and favorable mortgage financing for first-time home buyers will continue to support demand and sales volume, while new guidelines issued by the central government in February to further clamp down on investment demand will slow price increases," said Tsang.

Also, according to the report, the new regulations will not dampen overall sales volumes because many developers have shifted their focus to mass-market housing, which addresses home-owner demand and is not the target of the government's policies.

Accordingly, those developers with large inventories of luxury properties — which are subject to policy controls — will see weak sales growth, said the report. These companies, including Yanlord Land Group, Zhong An Real Estate and SPG Land (Holdings), will need time and new funding to reposition their product strategy, Moody's said.

"With stocks overall, Moody's expects that the rated developers will keep their work-in-progress inventory at reasonable levels — around two to two-and-a-half times revenue — as they continue to expand cautiously," said Franco Leung, a Moody's assistant vice-president, adding: "Through the down-cycles in 2008 and 2011 to 2012, they learned to allocate capital only to projects that have good track records of contract sales."

The report also said that liquidity remains adequate for most rated developers. Improved inventory management, continued access to offshore bond markets and stable sales growth will help most rated developers maintain adequate liquidity during the outlook period.

However, a few low-rated developers will still need to address refinancing of their large proportion of short-term debt since their sales are not strong, it said.

Looking ahead, Moody's is unlikely to change the industry outlook to positive over the next 12 months because it believes the central government will not relax its restrictions on home purchases because of the risk of a run-up in prices.

On the other hand, Moody's would consider changing the outlook back to negative if the government imposed additional restrictions that it believes would cause year-on-year property sales to fall 10 to 15 percent for six months, the report added.