Saturday, February 27, 2010

China property price gains unsustainable, says S&P

China’s property market will probably go through a “more meaningful correction” this year because the price gains in 2009 aren’t sustainable, according to Mr Christopher Lee, corporate ratings director at Standard and Poor’s.

The outlook for the Chinese market is “neutral” for this year, Mr Bei Fu, an associate director of corporate ratings at S&P, said during a conference call with Mr Lee on Thursday.

“The middle of this year could be a potential turning point for many developers,” Mr Fu said. “A combination of slower demand, higher supply and various government initiatives will dampen market sentiment.”

China’s property prices surged 9.5 per cent in January, the most in 21 months, as total new loans surged to 1.39 trillion yuan ($287 billion), more than in the previous three months combined.

The China Banking Regulatory Commission ordered banks last month to “strictly” follow property lending policies.

Investors tend to “sit on the sidelines” in anticipation of more tightening measures to curb property price gains this year, Mr Lee said.

Gradual and Cautious

Beijing will scrap some home-purchase incentives after the jump in prices, reducing the scope of a housing sales-tax exemption and enforcing a 40-per-cent down-payment requirement for second homes, the capital’s Municipal Commission of Housing and Urban-Rural Development said earlier this week.

The People’s Bank of China raised the reserve requirement by 50 basis points for the second time this year on Feb 12 to slow bank lending. The hike came into effect on Thursday.

The central bank said in its quarterly report that it wanted to gradually normalise monetary conditions from a “crisis mode” after gross domestic product grew 10.7 per cent in the fourth quarter, the fastest pace in two years.

“Policy introduction this year will be in a gradual and cautious manner,” Mr Fu said.

“Stability will be the focus.”

The Chinese government will increase supply of subsidised public housing this year to provide affordable accommodation for people with lower incomes, and there will be a “surprise” in the number of available luxury homes by the middle of this year, when projects started one year ago are completed, leading to stronger competition among developers, she said.

Industry Consolidation

“Bigger and stronger property players will do even better as they have the scale and financial resources to grow, and smaller companies will find the market condition more challenging,” Mr Fu said. “We expect to see more merger and acquisition activities in the sector.”

China Overseas Land & Investment, a developer with a BBB- credit rating from S&P, the highest among 11 Chinese developers the ratings company analysed, will benefit from industry consolidation this year, S&P said. China Overseas, which is owned by the nation’s construction ministry, is poised for a “possible upgrade,” the report said.

Companies rated B+ and below, including Greentown China Holdings and Shanghai Zendai Property, may become potential acquisition targets, according to the report.

Source: Today, 27 Feb 2010

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