Top 5 features of China's property market

Top 5 features of China's property market

Chinese authorities have eased mortgage lending terms and housing taxes to boost the property market and add fuel to overall economic growth.

The People's Bank of China lowered the minimum down payment for second homes from 60 to 40 per cent on Monday, while the Ministry of Finance announced its plan to cancel sales tax on pre-owned homes sold two years or more after purchase.

International rating agency Moody's expects such policy easing to alleviate downside pressure on property sales, which declined by 16.7 per cent in the first two months of this year.

1. Decline in national contracted sales to ease for rest of the year

Moody's expects nationwide home sales to record a narrower year-over-year decline of between 0 and 5 per cent compared to 7.8 per cent in 2014 because of the greater availability of mortgages and improved buyer's sentiment following supportive policies.

China's property market retained a downturn in the first two months of 2015, as contracted sales declined by 16.7 per cent year-over-year to 4.98 trillion yuan, according to the National Bureau of Statistics.

The volume decline was higher than expected, but was partly because many homebuyers made their purchases before year end when developers actively launched new sales projects, Moody's said in a note.

2. Residential home prices will remain under pressure

The rating agency expects residential home prices to remain under pressure over the next few months as developers continue to offer price incentives for projects, said Moody's in a note on Mar 24.

Housing prices remained downward in February, as 52 cities surveyed registered a more than 5 per cent decline in home prices, compared to only 38 in January.

According to the report, Hangzhou's decline for the eleventh consecutive month of 0.4 per cent was a result of developers' price discounting activities aimed at reducing inventory.

3. Offshore bond issuance among developers to slow following the Kaisa incident

Offshore bond issuance among developers has significantly slowed since the beginning of this year, as the rating agency reported that only six issuers tapped the offshore bond market, while 20 made issuance for the same period last year.

Kaisa's financial troubles elevate risks for Chinese developers, said Moody's in the note, adding that it expects offshore funding costs to remain high over the coming months, potentially causing interest coverage ratios to deteriorate.

"Offshore markets remain an important funding channel for rated Chinese developers, accounting for an estimated 30 to 35 per cent of total debt," said the report.

Total issuance among rated developers this year as of Mar 24 fell to US$4.7 billion (S$6.4 billion) from $9.2 billion during the same period last year.

4. Liquidity remains stable

Moody's expects most rated developers to meet repayment obligations, but casts doubt over the debts of Glorious Property Holdings, Kaisa Group and Renhe Commercial Holdings.

"We expect high uncertainty for Glorious Property's $300 million senior notes due in October 2015, given its inadequate liquidity and weak contracted sales in 2014," said the report, adding that Renhe's liquidity position also remains fragile.

5. Mortgage policy easing will support the real estate sector

China's easing of mortgage lending terms and housing taxes will alleviate the downside pressure on property sales, said Moody's in a note on Tuesday.

While the current policy relaxation will boost sales volume in the near term, developers' pricing power is expected to remain limited as market inventory is high and developers with weak liquidity will take the opportunity to offer promotions, the report added.

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