Moody’s downgrades China property sector outlook, Fitch trims GDP forecast

Boost from policy support is likely to be short-lived, as China’s economy still faces a host of challenges, Moody’s says in report

Fitch’s forecast for GDP growth this year cut by 0.8 percentage points to 4.8 per cent

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A residential construction site in Tianjin, China. The gap in credit quality between state-owned and privately-owned property developers could grow further over the next 12 months, Moody’s says. Photo: Reuters

Published: 7:30am, 15 Sep 2023

Moody’s Investors Service has revised its outlook for China’s property sector from “stable” to “negative” despite the introduction of a slew of stimulus measures by China’s regulatory authorities to boost home sales and prop up a flailing property market.

A report released by the international ratings agency on Thursday listed China’s weaker economic growth prospects and continued buyer concerns over timely project completion and delivery as main factors contributing to a negative outlook.

“We expect nationwide contracted sales to fall around 5 per cent over the next six to 12 months, driven by a decrease in volume, as homebuyers’ concerns continue,” said Cedric Lai, a vice-president and senior analyst at Moody’s. “Credit stress at Country Garden Holdings has amplified [buyers’] risk aversion.”

The agency expected the impact of China’s latest stimulus measures, including reduced mortgage rates and down payments, to unevenly affect higher and lower-tier cities, with the latter expected to face further sales declines due to continued population outflows. Sales in first and second-tier cities, on the other hand, will be more resilient.

Moreover, the boost from policy support is likely to be “short-lived”, as China’s economic recovery still faces a host of challenges ranging from low consumer confidence and high local government debt to high youth unemployment.

Moody’s also pointed out that the gap in credit quality between state-owned and privately-owned property developers could grow further over the next 12 months, as homebuyers and investors now want to avoid entrusting their money with debt-laden private developers, which are also facing difficulties in accessing funding.