Moody's: China home prices cool further in face of continued regulatory measures

Moody's Investors Service says that China's residential property prices have cooled further in view of the implementation of tight controls in major cities since September 2016 aimed at curbing price rises by dampening investment and speculative activity.

"Price growth in tier 1 and 2 cities is likely to remain muted in the next 6-12 months as the current tight regulatory measures are unlikely to see any loosening," says Kaven Tsang, a Moody's Vice President and Senior Credit Officer.

Home prices in China's four tier 1 cities declined for the first time in 2017 by 0.3% month-on-month in August, after two consecutive months of flat month-on-month growth in June and July.

This level is lower than the 2%-4% average monthly growth recorded prior to September 2016, when the government introduced its current restrictions.

Meanwhile, major tier 2 cities recorded slower month-on-month price rises of 0.1% in August 2017, compared with 0.4% in July 2017.

Furthermore, price growth in lower-tier cities is moderating, but remains higher than that for tier 1 and 2 cities as a result of a spillover in demand. Average month-on-month price growth in lower-tier cities declined slightly to 0.4% in August 2017 from 0.6% in July 2017.

Moody's conclusions are contained in its just-released China Property Focus, "Price growth cools further amid tight regulation".

Moody's report points out that nine cities have implemented new regulatory measures recently. In particular, tier 2 cities, including Chongqing, Nanchang, Shijiazhuang, Nanning, Changsha and Guiyang, are prohibiting newly bought properties from being resold within a certain number of years.

On a sales-value basis, national contracted sales grew 14.2% year-on-year for the eight months between January and August 2017; lower than the 15.9% growth seen in the seven months between January and July 2017.

However, Moody's-rated developers have achieved higher contracted sales levels versus reported average national sales so far in 2017, and Moody's expects that these companies will continue to outperform the broader industry.

The report further notes that inventory levels are still healthy and manageable, even though they rose in the tier 1 and 2 cities in August, when compared with July, due to slower sales in August 2017.

A total of 14 developers (26.4% of Moody's rated Chinese property developers) had negative rating outlooks as of 27 September.

Moody's expects the number of negative outlooks to decline modestly in the next 6-12 months as the credit profiles for certain rated developers will improve, supported by strong sales, improving margins and lower funding costs.