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Global rating agency Moody’s Investors Service on Friday downgraded the outlook of property developers including China Resources Land, China Overseas Land and Investment, China Vanke, Greentown China, Yuexiu Property, and China Jinmao to Negative.
Notably, the developers are either state-owned developers or mixed-ownership companies with state background.
The downgrades reflect uncertainty about the real estate developers’ ability to restore credit metrics commensurate with their current ratings in the next 12 – 18 months, while uncertainty about the prospects for recovery in China’s property market still persisted, Moody’s said.
The rating agency believed that these companies urgently need to address their debt burdens and improve their operating results in order to stabilise and maintain their credit ratings in the coming months.
For China Resources Land, Moody’s believed that fundamental changes in the property sector, the outlook for sales growth and declining profitability would challenge the company, offsetting its deleveraging efforts.
For China Vanke, Moody’s noted that despite the support from recent policy easing in first-tier cities, the developer’s contracted sales are still expected to fall in the next 1-2 years, which could weaken its financial indicators.
Earlier, on September, Moody’s downgraded the outlook of China’s property sector from Stable to Negative, saying that the sluggish economic growth and the market concerns over timely delivery of properties will add pressure on homebuyers’ confidence and demand.
China’s home sales, after a short-lived rebound in early 2023, has been declining rapidly. According to data from real estate research firm China Index Academy, the country’s top 100 property developers’ have been falling month over month since April, sliding by 17.4%, 18.8%, 19%,33.8% and 8.9%, respectively in April – August.
The top 100 property developers’ sales reached 254 billion yuan in August, slumping 41% from a year earlier, expanding by 3 percentage points from the previous month, and for the first eight months of the year, their sales reached 2.97 trillion yuan, sliding 10% year over year, expanding by 5 percentage point from the first seven months, according to data from Bank of China International.
The property developers whose outlook was downgraded by Moody’s all saw sales decline in August year over year, with sales of China Jinmao slumping 69.1%, Greentown China down 57.4%, China Overseas down 52.2%, China Vanke down 31.1%, Yuexiu Property down 27.2%, China Resources Land down 19.7% and Poly Developments down 17.5%.
China’s local governments have introduced housing property relaxation since the end of July, such as using home ownership instead of mortgage records for recognizing first home purchase qualification, lower down payment ratio, etc.
Moody’s believes the policy easing in the cities will benefit tier-one and tier-two cities, where improvement-based demand accounted for a large proportion of home demand, but it will be hard for tier-three and tier-four cities to benefit.
China’s economic recovery is currently facing challenges and the stimulus from the policy change will likely ease in a couple of months, said Moody’s.