Moody's upbeat on Chinese developers' prospects

Mainland developers hit by shrinking profit margins and rising debt levels in first-half earnings reports can look forward to a better second half, Moody's Investors Service says.

Against the backdrop of a market downturn, the developers saw weaker earnings and slower cash collection from contracted sales in the first six months of the year. Profit margins fell and debt levels increased for all 12 mainland property firms rated by Moody's.

However, the ratings agency said their earnings before tax and interest should rise in the second half as they completed more projects and liquidity increased along with higher contracted sales. Average gross margin was 31.7 per cent in the first half, against 32 per cent for all of last year, it said.

Tight financing and high inventories have weighed on the property market. In July, new home prices fell month on month in 64 of the 70 cities tracked by the National Bureau of Statistics.

Despite a tough start to the year, Moody's said: "We expect that most of the rated developers will record higher contracted sales growth in the second half than the first half, owing to increased availability of mortgages, shortened mortgage-processing times and the loosening of restrictions on home purchases in certain cities."

Developers' credit quality should gain a boost from better liquidity and stronger sales in the second half, it said.