China’s property crisis: stimulus measures unlikely to prop up beleaguered home sales in the long run, Moody’s warns

The impact is likely to be short-lived, with home sales remaining sluggish for at least the next six months, the credit ratings agency says
This is likely to further crimp the ability of developers to meet their mountain of debt obligations, Moody’s says in a report

China property

Cheryl Arcibal

Published: 5:01pm, 24 Oct 2023

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The positive impact of mainland China’s property stimulus measures is likely to be short-lived, with home sales remaining sluggish for at least the next six months, according to Moody’s Investors Service.

This is likely to further crimp the ability of Chinese real estate companies to meet their mountain of debt obligations, the credit ratings agency said in a report on Tuesday.

In the first eight months of the year, home sales fell 1.5 per cent.

But there have been recent signs that a slew of supportive government measures are at least having some impact.

In September, the weighted average prices of new homes in China fell 1.4 per cent on a monthly basis, half the 2.8 per cent decline in August, according to the country’s statistics bureau, which tracked 70 cities.

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In top-tier cities such as Beijing and Shanghai, the prices of new homes rose by 0.4 per cent and 0.5 per cent, respectively. Lived-in home prices have also seen some improvement with prices in large cities increasing by about 0.2 per cent to arrest a four-month slide.

Although the market has not yet recovered as a whole, prices in some cities and regions have bottomed out and are showing signs of rebound, said Zhang Bo, chief analyst at the 58 Anjuke Real Estate Research Institute in Shanghai. Market-friendly policies introduced in late August and early September were pivotal, he added.

Moody’s is less optimistic. In September, the company downgraded the outlook for China’s property industry to negative from stable, citing the slow economic recovery and the fact developers were struggling to deliver completed flats to buyers.

“We expect the benefit to housing demand from recent supportive policies will be short-lived, and forecast nationwide contracted sales will decline over the next six to 12 months,” it said in Tuesday’s report.

“The credit quality of many developers has weakened in the past one to two years amid the property market’s prolonged downturn.

“The unclear recovery prospects of contracted sales add further uncertainty for them to restore financial profiles commensurate with their rating levels in the next 12-18 months.”

Counting October, some US$60.5 billion of Chinese property bonds come due in the next six months, with offshore debt accounting for at least a third of that, according to Dealogic data.

A massive US$124.5 billion of bonds are now in default in the China property dollar bond sector, which is worth US$175 billion, according to the latest calculations by research company CreditSights.

China’s national and local governments have been rolling out a range of initiatives to breathe life back into the beleaguered property market.

Just this week, the Ministry of Natural Resources has issued directives to allow municipalities to remove a 15 per cent cap, implemented in 2021, on the premium developers pay for land. The new policy means that parcels of land will be awarded to the highest bidder instead of a random winner from all those bidding the maximum under the cap, encouraging developers to take part and potentially reviving land sales.

Meanwhile, a change in the rules dictating floor area ratio will allow property companies to build villa-style houses that have fewer square metres of floor space than land area, as long as they are located outside urban zones.

Local government have introduced measures making it easier for developers to reduce mortgage rates and thereby spur sales.

In March, Changzhou, a wealthy city in China’s eastern Jiangsu province, started allowing homeowners to resell their property as soon as they have obtained a Real Property Ownership Certificate, rather than having to wait two years after their purchase.