Chinese developers face more challenging environment, says Moody’s

Policy tightening in China’s property sector is unlikely to end anytime soon and the operating environment will be very challenging for developers in the next 6-12 months, Moody’s say.

Since more than 45 cities have rolled out stricter home-buying polices in the past few months to curb speculation, sales volumes are expected to drop while inventory levels will increase – with smaller developers particularly exposed to risks.

“Land prices continue to be high and only the more financially strong developers will be able to afford the high land prices,” said Moody’s vice president and senior credit officer Franco Leung. “Smaller and financially weak developers will find it increasingly difficult to compete with bigger ones.”

The ratings agency said it has already seen some smaller developers short of liquidity making asset sales to larger ones, a trend it believes will continue.

National contracted sales growth by value is expected to be slightly negative through to May 2018 against the high year-on-year growth of 36 per cent achieved for the full year 2016.

The outlook for the property market overall is stable, said Moody’s. Although Chinese regulators have shut down the onshore bond issuance channel for developers, the offshore bond market and bank financing is still available to developers with good credit quality, it added.