MNI: China Property Sales Could Slow 5% Next Year: S&P

     BEIJING (MNI) - China's property sales are expected to decline as much as

5% next year due to the high base this year and a possible slowing of sales in

lower-tiered cities, S&P Global Ratings said Monday.

     In a webcast gauging the future outlook of the Chinese property sector, the

ratings agency said the projected drop of sales growth could be attributed to

the robust sales this year pushing the base to a high level. S&P said that

national property sales rose 10% from January to October, which was above

expectations, but that they fell markedly in October, with a year-over-year

decline of 3.4%, signaling a slowing trend.

     Sales growth in lower-tiered cities, which the ratings agency said had

greatly boosted China's overall property sales over the past year, is also

expected to slow, weighing on overall national sales growth next year, S&P said.

     The property market in lower-tiered cities has been heating up this year

due to the spillover effect from high-tiered cities as the government rolled out

much stricter curbs in the higher-tiered cities. But lower-tiered cities are now

also more sensitive to policy tightening due to their less solid economic

fundamentals, Matthew Chow, director of corporate ratings at S&P Global, said in

the webcast. 

     Supply and demand dynamics are also changing, Chow said, referring to the

reduction in supply of property units in lower-tiered cities based on slowing

demand.

     "Local governments are trying to get the situation under control" by

tightly controlling the growth in the average selling price of properties, Chow

said.

     In line with its previous predictions and analysis, S&P said consolidation

of property companies would continue and even quicken for the rest of this year

and next year. 

     Property developers with more reliance on alternative funding will face

greater debt pressures, S&P said. Trust funding has increasingly become a

funding channel property companies resort to because Chinese government bodies

such as the China Banking Regulatory Commission and the People's Bank of China

have stepped up measures to control credit flowing into the property sector.

     Although revenue of developers is expected to increase next year, their

weakening debt sustainability may pose a negative factor, forcing them to reduce

land acquisitions, S&P said.

     The ratings agency also addressed the development of real estate investment

trusts, or REITs, saying the government would open up the sector as it tries to

reduce investment into the physical property market as it tries to boost the

rental property sector.  

     S&P also noted that property companies with stronger balance sheets could

expand into the leasing property market and become more profitable in the longer

term.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: iris.ouyang@marketnews.com

--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com

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