Moody's cuts China's property industry outlook

Moody's on Wednesday lowered its outlook for China's property industry to negative from stable, reflecting expectations of slower residential property sales growth, high inventory levels and weakening liquidity over the next 12 months.

Most of the rated developers have good cash buffers and manageable refinancing risk, however, the rating agency said, as they benefit from waves of bond issues and solid demand for their mass market properties.

"The weaker sales growth for the sector is driven mainly by tighter onshore liquidity, increased mortgage rates, buyers' expectation of further easing of property prices and slower GDP growth in China," Moody's said.

After increasing at double-digit rates through most of last year, home prices in China started cooling in late 2013, with the annual growth in average new home prices slowing to an 11-month low in April, as a sustained campaign to clamp down on speculative investment and easy credit gained traction.

An abrupt correction in the real estate market would pose risks to the banking system and the already-cooling economy. China's central bank has asked commercial banks to speed up the granting of home loans and set mortgage rates at reasonable levels, sources told Reuters last week.

Franco Leung, a Moody's assistant vice president, told a roundtable that Moody's expects China's property sales value will see flat to 5 percent yearly growth over the next 12 months, compared to a 26.6 percent growth at the end of 2013.

He expects nationwide property prices to grow at the same rate, with a correction in the lower-tier cities weighing on the growth of their first-tier peers.

Yet, the agency said it expects the credit quality of most of the 52 developers that it rates to continue stable due to their good liquidity and access to funding.

Favorable operating conditions in 2013 boosted the liquidity of many rated developers, it said.

"Their financial matrix are stabilizing in 2014 because they're booking their record sales from 2013," said Kaven Tsang, a vice president at Moody's.

Tsang also said the large scale and high demand for the mass market properties help these developers to withstand the current market downturn.

Growth of trust financing in the first quarter of the year has slowed as some developers repaid the trust loans with sale proceeds in order to lower the refinancing cost, according to Tsang.

Referring to the recent proposed stake purchase in Greentown China Holding by Sunac China Holdings, Leung said he expected to see more of such consolidation as developers count on bigger scale to win loans from banks.

The last time Moody's downgraded China's property sector's rating to negative was in April 2011, when the central government introduced restrictions on home purchases in order to curb the overheating market.