Moody's maintains negative outlook on mainland China ahead of property data

A day before Beijing announces property sales figures for the first 10 months, ratings agency Moody's yesterday said it would maintain negative outlook on the mainland's property sector despite recent policy relaxations.

The agency said it expected contracted property sales nationwide to drop up to 5 per cent next year, which betters its previous prediction in May, when it downgraded the outlook for the real estate industry to "negative" from "stable".

The National Bureau of Statistics will announce property sales and investment data for the first 10 months today. In the first three quarters, residential property sales revenue fell 10.8 per cent from a year earlier.

Private data shows a recovery last month after some policy easing, including cheaper and easier mortgage loans as well as tax cuts in many cities.

However, there are doubts if the recovery will last as the industry enters a traditionally slack season in winter.

"Inventory levels will remain high and liquidity will remain tight for the broad industry," adding to challenges for developers to service the high levels of debt they had incurred to buy land for new projects, Moody's said.

Inventory in nine first and second-tier cities on its radar as of the end of September would require 14.4 months to clear, an improvement on the previous three months but much higher than the rest of the past two years, Moody's data shows.

"We expect property prices to decline modestly as developers offer promotions or discounts to boost property sales and increase liquidity," it said.

According to Moody's, leading developers such as China Overseas Land & Investment, China Resources Land, China Vanke and Poly Real Estate will continue to outperform as they have done so far this year.

But companies such as Evergrande Real Estate, Guangzhou R&F Properties, KWG Property, Gemdale Corp and Hopson Development will see negative rating pressure if they fail to lower their debt ratio or improve sales, it added.

The agency singled out Agile Property, whose chairman has been in detention since the end of September, as proof of rising "event risk" weakening developers' liquidity.