Moody's: China property sales to slow, price growth to decelerate in 2017

Moody's Investors Service says national sales growth in China's (Aa3 negative) property market slowed to 38.3% year-on-year in October from 61.2% in September, and will continue to moderate following the government's implementation of tightening measures in late September and early October.

"The latest round of measures will likely also moderate property price growth in major cities where prices have been growing particularly fast," says Anthony Lee, a Moody's Analyst.

"However, policies targeted at clearing inventory in lower-tier cities with high inventory levels will remain supportive of property prices. Spillover demand from tier 1 and 2 cities with purchase restrictions to nearby satellite cities will also benefit developers operating in those cities," adds Lee.

Moody's conclusions are contained in the November edition of its China Property Focus newsletter.

Flat or slightly negative growth in contracted sales, along with healthy inventory to contracted sales growth and generally supportive funding conditions, also support Moody's stable outlook for the sector in 2017.

Moody's expects the government will continue to balance its desire to keep price growth in check with its target of maintaining stability in the property sector to support economic growth.

Home prices for China's 70 major cities extended their rising monthly trend in October. The number of cities registering year-on-year increases rose to 65 in October from 64 in September, and the number reporting year-on-year increases of more than 5% rose to 33 from 29.

Among the 70 cities, first-tier cities continued to see strong price growth, although growth has moderated. For the tenth consecutive month, all four first-tier cities -- Beijing, Guangzhou, Shanghai and Shenzhen -- posted double-digit year-on-year price growth.

Meanwhile, the inventory of residential properties in the first and sample second-tier cities that we track remained low, at around seven and six months respectively in October.

Cumulative national new residential construction starts between January and October 2016 grew 8.3% year-on-year after two years of consecutive declines.

Moody's liquidity index for investment-grade and high-yield Chinese property developers -- which measures the number of rated developers that exhibit inadequate liquidity or are assigned our weakest speculative-grade liquidity score of SGL-4 -- improved further to 18% in October from 20% in September.

The improvement was driven by increased cash flows from strong sales growth and the fund raising activities of a few small developers.