Moody's: China's regulatory loosening helps turn year-to-date national home sales positive in May

Moody's Investors Service says that sales of new homes in China turned positive in the first five months of 2015, mainly due to the momentum gained through the supportive monetary and regulatory polices implemented by the Chinese government (Aa3 stable) since the second half of 2014.

"As for prices, monthly home prices recovered slightly in May 2015 for China's 70 major cities. In particular, the number of cities that registered home price declines of more than 5% year-on-year fell to 54 in May 2015 from 58 in April 2015," says Franco Leung, a Moody's Vice President and Senior Analyst.

The improvement in national home sales and home prices support Moody's revision of the property industry outlook for China to stable from negative on 1 June 2015.

"On Moody's rated developers, we expect that the sales performance recorded by such developers will outperform that of the broader industry in calendar 2015, because of the developers' strong execution records, reputable brands and financial strengths; against the backdrop of ongoing industry consolidation," adds Leung.

Moody's analysis is contained in its latest edition of China Property Focus, a monthly newsletter focused on credit trends within the Chinese residential property market.

Moody's newsletter explains that according to China's National Bureau of Statistics, year-to-date national contracted sales growth turned positive in May 2015, with cumulative contracted sales registering a year-on-year growth of 5.1% ( trillion) in the first five months of 2015, up from a year-on-year decline of 2.2% ( trillion) in the first four months of 2015.

Sales in May 2015 registered a 30.4% year-on-year growth, the second positive year-on-year monthly increase this year, after April's 16%. Sales volumes rose 16.4% year-on-year in May 2015 and average selling prices rose 12.0% in the same period.

As for the month-on-month price changes, Moody's newsletter says that the changes indicated easing pricing pressure; for example, 43 of the 70 major cities reported month-on-month price declines in May 2015, compared to 48 in April 2015.

Further supporting the trend of easing pricing pressure, for the first time since August 2014, a price growth of more than 5% was recorded in China, with Shenzhen recording an improvement of 7.7% in May 2015.

Moody's newsletter points out that while overall inventory levels have remained high, both tier one and tier two cities registered lower supplies of residential properties in May 2015 versus April 2015. Downward pressure on home prices will continue to see gradual easing through 2015 as developers manage down their inventory.

Meanwhile, the continued decline in new starts and total land transactions in terms of gross floor area should help slow housing supply and inventory growth.

Moody's newsletter further says that the favorable policies implemented by the Chinese government -- including the increased availability of mortgages, as well as lower down payments and funding costs to buyers financing their second homes with bank mortgages -- will support sales performance over the next 12 months.