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Moody's maintains stable outlook for China property developers

HONG KONG: Moody's Investors Service is maintaining its stable outlook for China property developers over the next 12 months and says that while prices will decline, the market is not overly inflated.

Moody's vice president and senior credit officer Peter Choy said on Monday, March 29 that currently, numerous factors -- many at opposing ends of the spectrum -- are at play on the China real estate landscape, leading to a market which shows restrained short-term weakness, but robust long-term fundamentals.

"Moreover, the ability of developers to manage through the situation is  much stronger than 18 months ago," he said. "And while we do not subscribe to the view that China's real estate market is grossly inflated -- attracting terms such as "an asset bubble" -- we do expect a 10% year-on-year decline in contracted sales in the country's first-tier cities."

Choy said in 2010, the performances of developers -- with sustainable business models and which focus on owner occupiers rather than investors -- will be less volatile.

"One of the key aims of the regulatory interventions has been curbing activity by property speculators, who will scale back their activities," he said on the release of a new Moody's outlook -- which he authored -- on Chinese property developers.

The report looks at key trends and their rating implications, demand and supply, how the authorities have used regulatory measures to cool the market -- buoyed partly by the government's stimulus packages and the easy available of credit -- and the financial fundamentals of Moody's 14 rated developers.

"In view of the market's improved fundamentals and the timeliness of recent regulatory interventions, the residential property market is unlikely to see a repeat of the slump of 2H2008," he said.

"Moreover, developers are under less pressure to reduce prices, given strong sales in 2H2009 and the resultant strengthening in their liquidity positions."

"And while Moody's rated developers may not achieve their ambitious sales targets in the next 12 months, there is unlikely to be any material impact on their ratings during this time frame. Furthermore, developers need more funding for their larger scale developments, but progress can be adjusted according to levels of funding availability," he said.

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