Moody’s Predicts Upswing in China Housing Sales

The Chinese government recently unleashed a barrage of measures to prop up demand for housing following several months of falling prices and slowing sales, and at least one international ratings agency believes this is about to start turning the market around.

In a report issued today, Moody’s Investors Service said it expects contracted sales for China’s property sector to improve during the fourth quarter, following government moves to loosen credit and the removal of home purchase restrictions in most cities.

“The year-over-year decline in total contracted sales for China’s residential property market will slow to 5 percent-10 percent for the full year 2014 compared with the drop of 10.8 percent recorded for the first nine months of 2014,” says Kaven Tsang, a Moody’s Vice President and Senior Analyst.

Tsang was speaking on the release of Moody’s latest monthly China Property Focus.

More Credit Should Translate into More Home Sales

Moody’s expect the relaxation of mortgage rules introduced last month to begin rekindling demand by bringing more buyers into the market, the agency said in a statement. Already during September the rate of decline in home sales volume had begun to moderate, according to figures from the National Bureau of Statistics.

During September, nine cities already reintroduced discounted mortgages for eligible buyers, following the central bank’s green light, and another 15 have made similar moves during October. The People’s Bank of China’s (PBOC) rule change also allowed for more buyers to regain access to mortgage credit after home loans had been restricted during the country’s housing boom.

“The new measures are credit positive for China’s property sector because they will increase mortgage availability and lower the cost of mortgages for borrowers who meet certain criteria, which will alleviate pressure on property sales,” adds Tsang.

Moody’s predicts that the China’s best known developers, and particularly those specialising in mass-market housing will benefit most from the PBOC’s new rules.

In particular, Moody’s singled out developers China Overseas Land & Investment Limited (COLI, Baa1 stable), Poly Real Estate Group Co Ltd (Baa2 stable), China Vanke Co Ltd (Baa2 stable), Country Garden Holdings Company Limited (Ba2 stable) and Shimao Property Holdings Limited (Ba2 stable) as likely to see an upturn in sales.

Prices to Remain Under Pressure

While sales volumes may be on the rebound the credit agency foresees ongoing pressure on housing prices as potential buyers should retain the upper hand in a market flooded in unsold homes.

Moody’s foresees that many of China’s largest cities will continue to report price declines over the next few months, due to an increased willingness by developers to provide price incentives to achieve their sales targets, and a large volume of new projects being introduced into the market.