China’s residential real estate developers are on less shaky terrain this year. That’s a key finding from a new sector report issued by Standard & Poor’s Ratings Services titled “China’s Residential Developers Are Back On Solid Ground; Outlook Revised To Stable”. Property sales have strengthened and more developers are able to improve their liquidity at favorable costs because funding channels have reopened. The central government also appears unlikely to introduce much tougher market-cooling measures, provided price rises are modest. Further, refinancing risks have ebbed, partly because of more proactive financial management. As a result of all these factors, Standard & Poor’s has revised its outlook for the sector to stable from negative. But the report notes that smaller developers could still struggle to raise funds or overcome stiff competition.
Residential sales picked up in late 2012 after a tough start to the year. In Beijing, for example, the number of apartments sold rose nearly 40% year over year in 2012, according to Beijing Real Estate Association. First-time buyers snapped up about 90% of these apartments, suggesting the release of pent-up demand. We see limited risk that the overall market will overheat because the majority of buyers are owner-occupiers.
We expect to take more positive rating actions this year. In the past five months, we have upgraded two developers, revised two rating outlooks to stable from negative, and removed two issuers from CreditWatch with negative implications. We didn’t downgrade any companies, but revised outlooks to negative on two issuers. In addition, we rated four new issuers. Our actions have moderated the negative rating bias since we revised the sector outlook to negative from stable in mid-2011. Liquidity pressure could continue to constrain the ratings on some companies in 2013, mainly smaller players that have found it difficult to improve sales despite the supportive market conditions.
See the full report here: