Fitch Ratings has today said it is expecting a stable outlook on the Chinese residential property sector in 2010. In a special report published today, entitled ’China Residential Property Market Outlook 2010’, the agency states that heavy-handed policy measures in the sector are not expected in 2010 since any sharp correction in the property market may hamper overall economic growth.
"However, Fitch believes there may be some fine tuning actions from mid-2010 when economic conditions are likely to have reached a point of greater stabilisation," says Michael Wu, Director on the agency’s Asia Pacific Corporates team. The policy objective of the Beijing government is to deflate potential bubbles and send early warning signals to investors and property developers. Fitch notes that without substantial tightening policy measures, market sentiment should be relatively stable, and that property prices are likely to move within a tight range. However, a strong performance in sales and profit margins is unlikely to recur in 2010.
The rescue packages launched by the Chinese government during late 2008 have been very successful in boosting market sentiment over the past 12 months. Most property developers have registered strong sales and pre-sales in 2009, with many exceeding their annual sales targets. Backed by strong pre-sales and a loose credit environment, property developers have substantially improved their liquidity and balance sheets across the board.
Short-term supply is limited, as indicated by inventory, and this will underpin market sentiment. Furthermore, fire-sales of properties are not expected given that most property developers are financially healthy. The medium- to long-term supply dynamic is also favourable to the Chinese property market with a government policy of maintaining adequate arable land to secure food supply and minimise reliance on food imports.
Near-term demand for property is largely tied to the regulatory environment. As the Chinese government will not allow an unlimited acceleration of the property market, the strength of demand in 2010 is expected to moderate. In order to secure long-term economic growth and manage inflation, the central government and the People’s Bank of China have a clearly established precedent of policy action. Nevertheless, they acknowledge that overly-restrictive policy actions would lead to over-reactions in the property market. Fitch does not see any change in long-term fundamentals on the demand side. It notes that long-term drivers of the residential property markets across China, namely urbanisation and income growth, remain on positive trends.