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> S&P lowers outlook for China property
> Reuters in Hong Kong
> 4:24pm, Jun 15, 2011
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> Standard & Poor's ratings agency lowered on Wednesday its outlook on
> China's red-hot property market to negative from stable on
> increasingly challenging credit conditions due to regulatory
> tightening.
> China’s property sector is expected to see a price correction of 10
> per cent in the next 12 months, with a much lower likelihood of a
> 20-30 per cent fall under a stress scenario, S&P said.
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> Neighbouring Hong Kong, another market in Asia that faces
> overheating risks, might see a sharp correction in prices if
> interest rates go up sharply and sap liquidity, and if China
> encounters a hard landing, S&P analysts said.
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> “For the next 6-12 months, we feel that there is heightened risks
> because the leverage has really gone up substantially,” Bei Fu,
> S&P’s credit analyst, told a news conference, referring to the
> Chinese market.
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> “Given that developers’ leverage is already high, we really need to
> see their sales performance on track to maintain their current
> credit profile. But right now, we feel our confidence over the
> market outlook on the effect on their sales is a heightened risk.”
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> China, where property prices have doubled over the past five years
> in first-tier cities, has unveiled a series of harsh market-cooling
> measures since April last year, restricting the number of apartments
> citizens can buy, raising down payments and slapping a property tax.
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> China Vanke , the country’s largest developer by sales, fell 1 per
> cent, while the Shanghai property index rose 0.2 per cent in
> afternoon trade.
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> In Hong Kong, China Overseas Land (SEHK: 0688) and Investment fell
> 1.5 per cent andEvergrande Real Estate Group (SEHK: 3333) was down
> over 4 per cent, compared with the broader Hang Seng Index’s0.4 per
> cent decline.
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> Some counters were also affected in the debt market.
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> Country Garden’s US dollar bonds with a coupon rate of 11.25 per
> cent due in 2017 were last bid at US$104.45, down more than six
> percentage points this year and more than two percentage points
> since June 6, according to Thomson Reuters pricing.
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> Evergrande Real Estate’s 13-per cent notes due 2015 have slipped by
> a similar amount, last quoted at US$102.00, down from US$110.75 at
> the start of January.
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> China, like many Asian countries, is facing the threat of a property
> bubble, with S&P analysts saying the implementation of government
> measures was key to stemming sharp price rises.
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> “Right now it’s more of an implementation of what has been
> announced, rather than pushing out new policies. If the current
> policies have been strictly implemented in tier 1, 2 and 3 cities,
> that’s very severe already,” Fu said.
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> Housing inflation eased to 2.8 per cent in the year to April in
> Beijing from 4.9 per cent in March, while it rose to 8.2 per cent in
> the northern city of Jilin from 7.9 per cent during the same period.
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> “We expect meaningful price adjustments in the second half of this
> year. If sales volumes remain sluggish, developers’ liquidity will
> quickly dry up, suggesting sporadic price discounting will likely
> intensify,” Fu said.
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