Will Chinas property market unravel in 2015? Chinas wobbly property market has kept investors on edge this year, but the countrys first rate cut in two years is expected to bring some stability into the all-important sector in 2015. Sales volumes will stabilize amid increased mortgage availability and improved buyers sentiment following various supportive policies including the recent interest rate cut, Moodys Investors Service wrote in its 2015 Outlook –China Property report. Residential property sales are forecast to decline between 0-5 percent next year, a far slower pace than this years near-double digit fall. Sales plunged 9.9 percent on year in the first 10 months of 2014. Beijing recently introduced measures to prop up the housing market – which accounts for 15 percent of Chinas economy and impacts more than 40 industries – including lower mortgage rates and down-payments for some home buyers and cutting interest rates. Last week, the Peoples Bank of China unexpectedly eased monetary policy. The central bank lowered its benchmark lending rates by 40 basis points to 5.6 percent and deposit rates by 25 basis points to 2.75 percent. Johnson Hu, analyst at CIMB believes the move is an inflection point for the housing market that could drive a sustained sales recovery. The PBoCs (Peoples Bank of China) rate cut is a strong catalyst for the China property sector as a) there is room for further cuts in mortgage rates, b) home buyers may see it as a signal of property market stabilization and thus boosting home sales and lowering housing inventory, he said. Historical patterns show that the first rate cuts in a cycle – September 2008 and June 2012 –helped drive a pickup in sales that lasted 1-1.5 years, according to CIMB. Home prices also started to rebound in 1-2 quarters after the first interest rate reduction. Price outlook Moodys is less optimistic recent easing will halt the decline in prices, however. High inventory levels will continue to pressure developers working capital and profit margins, and weaken their pricing power, Moodys said, noting prices will continue to decrease as developers offer promotions and discounts to boost sales and liquidity. Average new home prices in Chinas 70 major cities fell 2.6 percent in October from a year earlier, the second consecutive month showing an annual fall, according to Reuters. Moodys declined to provide specific guidance on price declines. Rate cut no panacea Jinsong Du, research analyst at Credit Suisse, meanwhile, doesnt believe the rate cut will have a lasting impact on the market unless its accompanied by an increase in liquidity. Although further interest rate and RRR (reserve requirement ratio) cuts have now become more likely, it remains unlikely that money supply will grow at a magnitude similar to 2009 and 2013 levels, he said. Therefore, we continue to expect a flattish housing market [in 2015].
Posted on: Wed, 26 Nov 2014 06:13:12 +0000
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