China’s real estate market has gone through asset inflation over the last 18 months, but improved liquidity levels and government intervention will help avoid a significant downturn in the market, said global credit ratings agency Moody’s.
The agency expects a “moderate correction” in the housing market over the next 12 months, but this would be offset by higher savings among investors and prudent regulation, it said in a report on Chinese developers it rates.
“The improved liquidity positions of developers – resulting from robust sales over the last year – and the low debt leverage of buyers together reduce the risk of any panic sales, therefore helping avoid any drastic correction,” according to the report.
“At the same time, as the most recent set of regulatory measures will be progressively enforced, there will emerge the high probability that contracted sales volumes (a combination of sales and volumes and prices) for the Moody’s rated portfolio will drop 15 to 20 percent year-on-year in 2011 with respect to current projects.”
The overall outlook for the sector is still stable, said Moody’s.
Out of the 23 developers included in the report, 15 had a positive or stable outlook, while eight received negative outlooks due to heavy expansion programmes, high debt, mediocre sales, or weak liquidity.
Broader lack of alternative investments in China and lacklustre performance in equity markets had pushed a flow of speculative capital into the real estate market, according to the report.
A supply shortage last year, together with austerity measures implemented by the government in 2007, had resulted in some asset inflation over the last few months.
However, recent government intervention aimed at controlling speculative investment would likely benefit the sector in the long term, said the report.
The measures aim to slow down and increase transaction costs, penalise land hoarding, reduce participation in the sector, increase affordable housing supply, as well as delay approval of pre-sale permits for “deluxe properties”.