China property market down cycle may last longer: Moody's
Moody's latest report forecast that the current slowdown in housing demand in China will last longer than the two previous downward cycles due to the ongoing economic rebalancing and high inventory.
"We expect the current slowdown to last longer than the down cycles in 2008 and 2011 as the government is unlikely to completely remove home purchase restrictions," said Franco Leung, a Moody's Assistant Vice-President and Analyst.
In addition, onshore credit and liquidity conditions are unlikely to be loosened, and economic growth is likely to continue to slow, Leung predicted.
In his view, the down cycles in 2008 and 2011 were preceded by significant credit tightening, regulatory measures, widespread implementation of home purchase restrictions and external macro shocks.
But housing demand was subsequently boosted by stimulus measures and material loosening of credit conditions and liquidity.
"Even if home purchase restrictions are removed in certain cities, such a measure is unlikely to spur material additional demand unless it is accompanied by increased availability of bank credit to the sector and a reduction in mortgage rates," the analyst wrote in the report.
As a result, the report said that most of Moody's 52 rated developers will slow their pace of land acquisition as their primary objective is to preserve liquidity.
Profit margins should stabilize for most rated developers in 2014 as they recognize pre-sales when prices were strong during the second half of 2012 and all of 2013, according to the report.
"But margins will weaken slightly in 2015 given higher land costs in 2013 and weakened pricing power in the current market environment," said Leung.
In addition, onshore credit and liquidity conditions are unlikely to be loosened, and economic growth is likely to continue to slow, Leung predicted.
In his view, the down cycles in 2008 and 2011 were preceded by significant credit tightening, regulatory measures, widespread implementation of home purchase restrictions and external macro shocks.
But housing demand was subsequently boosted by stimulus measures and material loosening of credit conditions and liquidity.
"Even if home purchase restrictions are removed in certain cities, such a measure is unlikely to spur material additional demand unless it is accompanied by increased availability of bank credit to the sector and a reduction in mortgage rates," the analyst wrote in the report.
As a result, the report said that most of Moody's 52 rated developers will slow their pace of land acquisition as their primary objective is to preserve liquidity.
Profit margins should stabilize for most rated developers in 2014 as they recognize pre-sales when prices were strong during the second half of 2012 and all of 2013, according to the report.
"But margins will weaken slightly in 2015 given higher land costs in 2013 and weakened pricing power in the current market environment," said Leung.
