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 latest interest rate cut is credit positive for property developers - EconoTimes)
"The PBOC's cumulative interest and required reserve ratio (RRR) cuts should support residential property demand from both end-buyers and investors over the next few months," says Franco Leung, a Moody's Vice President and Senior Analyst.
"We expect the increased demand will most benefit developers with a focus on mass-market buyers, who tend to rely more on mortgage financing," adds Leung.
Moody's conclusions are contained in its report "Property - China: Latest PBOC Rate Cut Should Support Sales, Is Credit Positive for Developers" released on 11 May 2015.
On 10 May, the PBOC cut its benchmark one-year lending rate by 25 basis points to 5.1% and the one-year deposit rate by 25 basis points to 2.25%. The latest interest rate reduction followed the RRR cut of 1.0 percentage point in April, and the easing of mortgage lending terms and housing taxes in March.
As such, the PBOC on a cumulative six-month basis reduced its benchmark lending rate by 90 basis points to 5.1% from 6.0% and its RRR by 1.5 percentage points to 18.5%.
Of its rated portfolio, Moody's expects property developers with a focus on the mass market, a high portion of domestic borrowings and reputable brand names will benefit the most. These companies include China Vanke Co. Ltd (Baa2 stable), Poly Real Estate Group Co. Ltd (Baa2 stable), Gemdale Corporation (Ba1 negative) and Shimao Property Holdings Limited (Ba2 stable).
Moody's report notes that property sales volumes have increased following the recent rounds of regulatory loosening. Total contracted gross floor area (GFA) sold for the nine cities Moody's tracked increased 51% year-on-year in April from 11% in March.
While the various policy relaxations boost sales volumes, Moody's believes developers' pricing power remains limited because market inventory remains high and developers with liquidity pressure continue their promotions to stimulate sales.
Nevertheless, Moody's expects the cumulative effect of China's interest rate and RRR cuts will moderately improve the credit metrics of rated developers as well their access to onshore borrowing.
