Moody's lowers outlook for China's property market

By Kim Young-gyo
HONG KONG, April 14 (Yonhap) -- Moody's Investors Service downgraded its outlook for China's real estate sector to negative from stable on Thursday, citing the country's macroeconomic environment.
"China's property developers face a tough operating environment, driven by tightening regulatory measures, rising interest rates, reduced bank lending, and increasing supply," said Peter Choy, a senior vice president at the global ratings agency.
"We believe this will inevitably lead to slowing sales, and pressure on profit margins and on balance sheet liquidity for some."
China's consumer price index (CPI) is likely to grow in the range of 4-5 percent over the next 12 months due to pressure from high food and energy prices, Moody's estimated.
High CPI growth has been a driver of previous downturns in the property market, it said. China's property market slumped in 2008 when China's CPI rose to a peak level of 8 percent in August 2008 triggered by drastic regulatory measures.
"Greater local enforcement of central directives to control residential property prices and purchase will put downward pressure on both prices and volumes of transactions as an increasing number of cities across China more effectively implement national regulations," Choy said.
Proceeds from contracted sales of residential properties are expected to decline by an average of 25-30 percent in China's first-tier and most of the second-tier cities, where local governments have implemented measures to stabilize property prices and prohibit the private ownership of more than two properties per family, Choy said.
During the next 6-12 months, Chinese property developers will face challenges in securing onshore debt financing, as the government enforces its strategy of slowing monetary growth to reduce the risk of accelerating inflation and to manage domestic banks' exposure to the property sector, the credit appraiser said.
Tighter domestic credit this year has led to a spate of offshore fundraising by property developers with offshore listings.
China is expected to release on Friday its consumer inflation figure for March. Many market watchers forecast the consumer inflation rate hover above 5 percent, with inflationary pressure still persisting in the world's second-largest economy.
ygkim@yna.co.kr