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Moody’s raises its forecasts for China’s real estate sector to ‘stable’

Moody’s raises its forecasts for China’s real estate sector to ‘stable’

debt rating agency Moody’s on Monday raised its forecasts for the Chinese real estate sector from “negatives” to “stable”, considering that sales will stabilize over the next year after falling by 28% in 2022.

The firm foresees that the conditions for the sector, in crisis in recent years, will improve even more as the national authorities promote measures to expand financing channels.

While buyers may still have concerns about home prices, the risks of incomplete projects and developer defaults, we believe the risk of sales falling further from their second-half trough of 2022 is low”, indicated kelly chenVice President and Senior Analyst at Moody’s.

The expert justified the decision to raise her perspectives on the sector due to “a more favorable political and operational environment that will support sales”.

Specifically, Moody’s he expects major cities to drive the recovery, with their available housing inventories falling to their historical averages, while smaller cities would not suffer the same fate.

The agency also detailed the conditions that must be met for it to review again, in this case to “positive”, its perspectives on the sector, which go through a rise of more than 10% in sales in the next 12 months, with increases “sustained” of volumes and prices; that developers have sufficient access to finance both in China and abroad without political support; and that the regulatory environment becomes more supportive over time.

At the same time, Moody’s I could lower them back to “negative” if sales fall by more than 5% between the next 6 and 12 months, the amount of available housing returns to approach the maximum that it marked in March 2020 and developers face greater difficulties to obtain financing and a more adverse regulatory environment .

The financial position of many Chinese real estate companies worsened after, in August 2020, Beijing announced restrictions on access to bank financing for developers that had accumulated a high level of debt by supporting their growth for years with aggressive leverage policies, among which Evergrande stood out with a liability of more than US$ 275,000 million.

In recent months, in the face of the crisis, the Government has changed its tune and has announced various support measures, with state banks also opening multimillion-dollar lines of credit to various developers, whose priority objective has been the construction of projects sold off plan.

Source: Gestion

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