Moody's Investors Service says that the Chinese property developers that it rates continue to report stronger growth in contracted sales than compared with the contracted sales growth rates nationwide over the first five months of 2014.
"The 20 Moody's-rated developers that we track achieved total contracted sales of RMB450.9 billion for the first five months of 2014, representing a 12.2% year-on-year increase," says Simon Wong, a Moody's Vice President and Senior Credit Officer.
"By contrast, total contracted sales for China's residential property market as a whole fell 10.2% year-on-year to around RMB2 trillion for the first five months of 2014," adds Wong.
Moody's also points out that its rated developers, particularly those which are large and financially strong, continued to maintain their access to the offshore bond markets.
"In 2Q 2014, a total of ten rated developers issued bonds totaling $5.9 billion. This amount was on top of the $9.2 billion total in 1Q 2014," says Wong.
"These new bond issuances help reduce our rated developers' refinancing risks, given that part of the proceeds are used to repay their maturing offshore bonds," adds Wong.
Wong was speaking on the release of Moody's latest monthly China Property Focus newsletter.
Moody's newsletter points out that the bond issuances in 2014 resulted in the rated developers exhibiting stable liquidity profiles, as indicated by Moody's liquidity index for the industry, which measures the number of rated Chinese property developers exhibiting inadequate liquidity or were assigned Moody's weakest speculative-grade liquidity score of SGL-4 .
Moody's liquidity index for Chinese property developers registered a mild increase to 19.2% in May 2014 from 18% the month before.
Moody's newsletter also says the current slowdown in China's property market will outlast the down cycles in 2008 and 2011 because of the country's ongoing economic rebalancing, and the high inventory levels built up, as the developers rapidly expanded over the past few years. In addition, the government is unlikely to completely remove home purchase restrictions or to significantly loosen onshore credit and liquidity conditions.
Moody's expects most rated developers will respond by slowing their pace of land acquisitions to preserve liquidity.
"As for the growth in residential property prices, we expect the year-on-year growth in home prices across China's 70 major cities to slow significantly over the next 12 months, mainly because of tighter bank credit to developers, and increased mortgage rates, as banks are reluctant to offer mortgage rates below benchmark interest rates," says Kaven Tsang, a Moody's Vice President and Senior Analyst.
"Growth in home prices will also be constrained by buyers' expectations of a further easing of property prices, and lower GDP growth," adds Tsang.
"Moreover, while May 2014 marks the 13th consecutive month in which property prices in 69 of China's 70 major cities grew, the number of cities recording strong price gains of more than 10% year-on-year fell to two in May 2014, from six the month before," says Tsang.
Moody's newsletter also says that between 29 May 2014 and 25 June 2014, Moody's took one negative rating action. It changed Hopson Development Holdings Limited's B3 rating outlook to negative from stable.
Of the 52 Chinese property developers rated by Moody's, 43 or 82.7% carried stable rating outlooks at 25 June 2014.
However, given the more challenging operating environment ahead, Moody's expects the number of negative rating actions to increase over the next 12 months.