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#Risk Watch* Outlook on China property sector raised to 'stable'

KUALA LUMPUR (Dec 5): The outlook for China's property industry has been raised to "stable" from "negative" on expectation that the trend of improved sales and access to funding will continue in 2013, according to Moody's Investors Service.

"Moody's expects property sales to grow in the single digits in percentage terms over the next 12 months," said Franco Leung, a Moody's assistant vice president, in a statement.

"Easing mortgage financing for first-time home buyers, increasing development of mass-market products, solid underlying demand, and continuing urbanization will lead to improved sales, which in turn will lower the inventories of property developers," he adds.

Developers have been recording positive year-on-year growth in sales since June, after they started building more mass-market housing, which caters largely to first-time homeowners.

These first-time buyers are usually based in lower-tier cities, where the government's restrictions on home purchases are less stringent.

In October, new house prices rose in 35 out of the 70 Chinese cities tracked by the national bureau of statistics, up from 31 in September. Prices fell in 17 cities, and remained unchanged in 18 cities, including Shanghai.

"But average selling prices are likely to decline mildly for at least the next 12 months, because developers have now shifted their focus to mass-market projects and away from luxury homes," said Kaven Tsang, a Moody's Vice President and Senior Analyst.

In addition, Moody's believes that the Chinese government is unlikely to impose further regulatory restrictions to tighten the property market, because the current restrictions have been effective in controlling speculation and reining in prices.
Since 2010, the government, worried that property prices were unaffordable and that developers were building too many luxury homes, implemented a series of tough policies.

Banks were ordered to cut their lending to developers and people were barred from buying second homes in most big cities in an effort to stamp out speculation.
In the absence of a material increase in average selling prices, a situation that Moody's believes is unlikely, the regulatory environment will not change significantly in 2013.

"A further cut back in investment in the property sector would also weigh on an already slowing economy and make it difficult for the government to achieve its stated target of GDP growth of 7.5%," Tsang added.

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