Moody’s: Increased property inventory levels in major cities remain manageable

Moody’s Investors Service says the inventory of residential properties in the Tier-1 and sample Tier-2 cities that it tracks rose to around nine months in February from around eight and six months in January 2017 and December 2016 respectively, but Moody’s believes the increased inventory level remains manageable.

“The moderately higher inventory level followed the increase in construction new starts in 2016. But the increased inventory level is manageable compared to the peak reached in 2015 and we do not expect it to raise the risk of material property price corrections in most of these cities in the next six months,” says Franco Leung, a Moody’s Vice President and Senior Credit Officer.

Moody’s conclusions were contained in its just-released “China Property Focus”.

Moody’s adds that land prices remained elevated in general, and that intense competition for land will continue to pressure developers’ margins in the future, if average selling prices do not rise in tandem with land prices.

“Property developers’ liquidity profiles remained strong. Offshore issuance activity picked up significantly in 1Q 2017, and the strong issuance activity has in general improved developers’ debt maturity and liquidity profiles, as the majority of the funds was used for refinancing activities,” says Leung.

In total, Moody’s rated developers raised close to $9 billion in the offshore debt capital markets year to date 24 March 2017, already surpassing the total offshore issuance of $8.7 billion in the full year of 2016.

Moody’s says that a total of 16 rated developers will have offshore bonds maturing or puttable over the next 12 months, and expects that these developers will meet their repayment obligations, with two exceptions which have a high level of refinancing risk.

Furthermore, national contracted sales (on a sales value basis) for the three months ended February 2017 grew by 19.3% year-on-year, modestly slower than the 22.5% growth recorded in December 2016. Moody’s believes the slowdown in growth was driven by tightened regulatory measures.

On average, the four first-tier cities of Beijing, Shanghai, Guangzhou and Shenzhen registered price increases of only 0.1% month-on-month growth in February 2017, largely unchanged from flat growth during the previous two months. The restrictive measures implemented since September 2016 by the authorities have moderated property price growth in recent months.

Source: Moodys

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