Moody's raises its outlook for residential property to stable

PUBLISHED : Wednesday, 07 October, 2009, 12:00am
UPDATED : Wednesday, 07 October, 2009, 12:00am

As concerns fade that the central government will soon introduce measures to tighten lending in the mainland property market, ratings agency Moody's Investors Service has revised its outlook for the housing sector to stable from negative.

Conditions in the sector are stabilising and likely to remain so over the next 12 months as a favourable macroeconomic environment has improved buying sentiment and reduced inventory, according to Moody's lead analyst Kaven Tsang.

'The operating environment for the Chinese real estate sector has improved with demand for residential properties buoyed by improved sentiment among buyers,' said Tsang.

'This support is in part driven by falling concerns that the government will intervene with material measures to curtail credit to home buyers in the residential market in the near term.

'While a moderate decline in contracted sales from such a high level is possible in the near term, we do not expect any material deterioration,' he said.

Transaction volumes in 20 key cities fell 14.5 per cent month on month in the first three weeks of last month after a 7.1 per cent decline in August, Royal Bank of Scotland reported.

Peter Choy, a Moody's vice-president, said the central government's economic stimulus programme introduced late last year had resulted in easier access to credit, and this had benefited the property market.

'While the government will no doubt adjust its policies again in the future, we see the current policy as likely to prevail over the next 12 months, as it is part of the strategy to encourage domestic consumption and fixed investments to support the economy in view of a relatively weak export performance and a benign inflationary environment,' Choy said.

On the supply side, improved occupancy in tier-one urban centres and the falling inventories at leading developers had lowered the chance of a repeat of the severe competitive price-cutting prevalent in the second half of last year, he said.

However, David Ng of RBS said an intervention by the central government could come earlier than expected.

After the announcement later this month of economic figures for the third quarter of this year, Moody's believes that the central government 'will have a better grasp of full-year [gross domestic product] growth, fixed-asset investment, exports and inflation', he wrote in a recent research report.

'Thus, the direction of the cooling measures may be more substantial towards the end of this year. Unless the property market cools naturally, we believe the risk of more serious cooling measures will rise in 2010,' Ng said.