China property sector to stabilise as cooling measures take hold, Moody’s says
Analysts say property sales growth will slow in 2017 and risks of further tightening measures remain
China’s real estate market is on track to stabilise despite the risk that any further tightening measures could hurt developers and cause a sharp fall in home sales, according to Moody’s analysts.
Meanwhile, the credit ratings agency sees Hong Kong property companies enjoying modest earnings growth in the next year.
The mainland property sector has a stable outlook for the near term, a Moody’s Investor Service report said, with the effects of newly introduced cooling measures unlikely to result in “dramatic declines” in sales or prices during the next six to 12 months.
But the latest round of restrictions is expected to slow sales growth in 2017 from the 43.2 per cent rise in national contracted sales seen in the first nine months of this year, according to the report.
China rolled out property tightening measures in late September and early October in around 20 cities in an attempt to temper surging real estate prices and overheating markets.
“We expect the government will continue to balance its desire to keep price growth in check with its target of maintaining a stable property sector to support economic growth,” Cindy Yang, a Moody’s analyst, said ina press release accompanying the report.
Average property prices increased 12.7 per cent in the first nine months of this year but that number was far higher, at 31.9 per cent, for tier-one cities, Moody’s said.
While price growth slowed in 15 first and second-tier cities in mid-October, according to National Bureau of Statistics (NBS) data, the risks of further government cooling measures remain.
“In the coming months, we expect that the government will closely monitor the development,” Kaven Tsang, vice president and senior credit officer at Moody’s, said on Tuesday at a media briefing. “If property prices in those major cities or in other cities continue to skyrocket, then there will be more measures to come. There will be very dynamic development, which [will depend] on the situation in each of the cities.”
Additional restrictions on house buying would dampen developer sales and cash flows, the Moody’s report said.
But property prices will remain high thanks to low inventory levels in first- and second-tier cities, Tsang said.
Liquidity and funding access within the sector will also remain healthy over the next 12 months, and developers’ near-term refinancing risks will stay at manageable levels, according to Franco Leung, vice president and senior credit officer at Moody’s.
A moderate number of offshore and onshore bonds issued by developers are due to mature in 2017. Analysts saw a pickup in the offshore bond market in recent months, Leung said at the briefing.
“Bond prices have come down significantly,” he said. “Developers are still benefiting from the cheaper offshore bond access.”
In the sector as a whole, Moody’s associate managing director Simon Wong said developers are unlikely to face “significant liquidity pressure” in the near term, even with greater currency controls .
Additionally, he says the real estate industry expects “consolidation will continue, whereby the big players will continue to get bigger.”
Meanwhile, according to a separate Moody’s report, property companies in Hong Kong will see 2 to 4 per cent growth in annual earnings before interest, tax, depreciation and amortization (EBITDA) in the 2016-2017 fiscal years, as stable office rental income and residential sales offset headwinds in the retail environment.
Sun Hung Kai Properties and Cheung Kong Property Holdings will fare even better, with a 5 to 7 per cent in EBITDA growth forecast for the 2017 fiscal year.
“We have seen a pickup in demand since Brexit and a resurgence of Chinese demand,” said Stephanie Lau, a Moody’s assistant vice president and analyst.
Hong Kong’s property market is benefiting from the yuan’s depreciation, as mainlanders clamour to invest in overseas property, Lau said.