After years of surging growth, the property market in China is starting to calm down as it experiences weakening sales and a tightened regulatory environment. As a result, the sector outlook for next year will very likely not be positive.
The growth rate of new home prices in major cities in China slowed down during the first ten months of this year, according to the National Bureau of Statistics (NBS). “There is 10% y-o-y growth as of October this year,” says Franco Leung, associate managing director at Moody’s Investors Service.
Chinese analysts expect the property industry to experience hard times in the next two years. “Although the fundamentals don’t indicate a sharp fall in the housing prices, developers are expected to decrease by about two-thirds in the next few years,” according to Chinese think tank, the China Center for International Economic Exchanges.
Meanwhile, Chinese regulators will continue to tighten supervision over the property sector as the central government says they will continue focusing on stabilizing property prices in the coming year.
According to a report issued on December 11 by the Chinese Academy of Social Sciences, investment in property development reached 109.6 billion yuan (US$15.57 billion) in the first ten months, recording a growth of 10.3% y-o-y. "The indicators show that there is no need to adjust the policies on the property sector," says the academy, noting that the regulators will continue to stabilize the market.
“We expect nationwide property sales to stay flat over the next 6-12 months. The fact that we are expecting flattening growth reflects a weakening in the property demand. In particular, we expect weaker demand in lower-tier cities because of the high base of comparison last year,” says Leung.
Moody’s has a stable outlook on the 2020 China property sector. “The reason why we have kept a stable outlook is mainly because of the expectation of y-o-y flattening sales growth over the next 12 months. The funding condition will remain tight,” says Leung. “The credit risk is actually mounting because of slowing sales growth and tight funding,” he adds, noting that the funding conditions are tighter than expected.
Changing the outlook to positive is unlikely next year, according to Moody’s. “If we were to change the outlook, it is more likely to be changed to negative rather than positive,” Leung says.
“And what will lead to a change in the outlook? There might be a further weakening in contract sales nationwide with a fall of more than 5-10% over the next 12 months, which could change the outlook to negative,” says Leung.