Moody's Investors Service has changed its outlook on China's real estate sector to stable from negative amid anticipated modest growth in property sales, the rating firm said today.
The change, effective in May, reflected the rating agency's improved expectations for the industry's fundamental business conditions over the next 12 months, Moody's said today in its latest released industry outlook report.
"We expect modest year-over-year growth of up to 5 percent in the value of nationwide property sales over the next 12 months to June 2016, compared with a decline of 7.8 percent in 2014, driven by the policies implemented by the authorities since the second half of 2014," said Kaven Tsang, a Moody's vice president and senior analyst. "The growth in volume will moderate the downward pressure on selling prices, resulting in turn from the high level of housing inventory, mainly in low-tier cities."
Favorable policies that will support sales in the next 12 months include the increased availability of mortgages and reduced down-payments as well as funding costs for buyers who want to finance their second homes with bank mortgages, according to the report.
The banks' lower required reserve ratio since February 2015 should release more liquidity into the market and increase their ability to lend to home buyers and property developers while the three interest-rate cuts implemented by the People's Bank of China since November 2014 will reduce financing costs for buyers who rely on mortgage loans, Moody's said.
Moreover, many local governments have eliminated home-purchase restrictions, fuelling property buying demand.
Home prices, mainly in lower-tier cities, will remain under pressure during the coming six to 12 months, according to Moody's forecast. The rate of decline, however, will slow from the sharp fall registered in the second half of 2014 as the supply-demand gap will narrow. But inventory levels will remain above 2013 levels and continue to limit developers' pricing power, the report said.