China developers' sentiment cooling

Chinese developers are still increasing construction, but sentiment has deteriorated on tighter financing and policy uncertainty, research from Standard Chartered showed on Tuesday.

The latest Standard Chartered Developers Sentiment Index has moderated from its mid-2013 peak, but still looks good.

The index was based on a survey of 30 developers in second- and third-tier cities around the country.

The survey revealed a market still clearly in growth mode, but one where sentiment has deteriorated. Land sales have rebounded, construction continues to grow and developers generally remain optimistic. However, rising prices, still-high inventory levels and increased policy uncertainty are gray clouds on the horizon.

The developers the bank surveyed expect land prices to continue to rise in the next one to two quarters. Thirteen respondents said they expected price rises of up to 10 percent, and 11 forecast even bigger increases.

Developers' financing conditions, however, appear to be getting tighter. A record 12 respondents said they had heard of cases of developers having problems paying for land. Eighteen respondents reported having seen large, cash-rich developers buy land from distressed smaller firms.

Developers have also become more cautious on policy. The Third Plenum document called for land reform and the legislation of a property tax, which most respondents said would be good for the long-term development of the market.

However, price rises appear to be making them cautious about the policy outlook. Twelve respondents expect China's new leadership to tighten real-estate policies in 2014, up from seven in the previous survey. Fourteen respondents expect no real change.

The respondents expect financing to be the main channel for such tightening - mainly project and mortgage loans.

Most expect no changes to housing purchase restrictions and other local government measures. However, some developers believe the central government will be tolerant of cities implementing their own measures to curb prices.