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China Property Focus: Very Strong Sales Growth Unsustainable Amid Tight Regulations

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China Property Focus: Very Strong Sales Growth Unsustainable Amid Tight Regulations CORPORATES SECTOR IN-DEPTH Property – China 30 March 2021 China Property Focus: Very strong sales growth unsustainable amid tight regulations TABLE OF CONTENTS » National property sales recorded very strong growth in the first two months of National property sales recorded very 2021 because of the low base in the same period of 2020. National contracted sales strong growth in the first two months of 2021 because of the low base in value increased 143.5% year-on-year in the first two months of 2021 because of the low 2020 2 base as a result of the coronavirus disruptions last year. The growth was largely driven Rated developers' offshore bond by a volume increase. We expect national sales to slow amid tightened onshore credit issuance weakened in Q1 2021 4 conditions. Year-on-year contracted sales value for the 30 developers we track (of the 70 Liquidity stress indicator rose in February 2021 5 we rate) increased 88.0% in the first two months of 2021, underperforming the national Ten rating actions from 27 January to market. 29 March 6 Appendix I 8 » Strong price growth will moderate in the rest of 2021. Property price growth Appendix II 9 remained strong in February 2021, mainly driven by Tier 1 and Tier 2 cities. However, we Appendix III 13 expect price growth to moderate in the rest of 2021 because local governments will fine- Moody's related publications 14 tune city-specific regulatory measures, aiming to curb rising prices. » Rated developers' offshore bond issuance declined in Q1 2021. In the first quarter of 2021 (up to 26 March), offshore bond issuance was $17.4 billion, a decline of 27.3% from Contacts the $23.9 billion in Q1 2020. Onshore bond issuance increased to RMB56.6 billion in Q1 Cedric Lai +852.3758.1456 2021 (up to 26 March), up 13.8% from the RMB41.0 billion in the corresponding period of VP-Senior Analyst [email protected] 2020. Franco Leung, CFA +852.3758.1521 » Liquidity stress indicator increased in February. Our February Asian Liquidity Stress Associate Managing Director sub-indicator for rated high-yield Chinese developers increased to 20.0% from 18.3% in [email protected] January, driven by weakened operating cash flow of one developer. Gary Lau +852.3758.1377 MD-Corporate Finance » Ten rating actions from 27 January to 29 March 2021. We upgraded one company, [email protected] downgraded three companies and revised the outlooks of five companies. CLIENT SERVICES Moody's China Property Dashboard Americas 1-212-553-1653 No. of high yield (HY) rated developers with weak liquidity Bond issuance ($ billion) Feb 21 Jan 21 Onshore Offshore Asia Pacific 852-3551-3077 # of HY developers with SGL-4 12 11 Jan-Mar 21 8.6 17.4 % of total HY developers 20.0% 18.3% 2020 36.2 52.8 Japan 81-3-5408-4100 Developers with highest YTD sales growth No. of rating actions 27 Jan 21 - 29 Mar 21 Jan-Feb 2021 Name % Positive Negative EMEA 44-20-7772-5454 Sales growth 1 Greentown 405% Rating actions 6 4 year-on-year 2 Hopson 316% New rating assignments 0 3 Agile 232% % of rated developers with positive outlook and RUR Up 9% % of rated developers with negative outlook and RUR Down 10% MOODY'S INVESTORS SERVICE CORPORATES National property sales recorded very strong growth in the first two months of 2021 because of the low base in 2020 » National contracted sales value grew 55.8% (three-month moving average) year-on-year in February from 21.8% growth in December 2020, largely driven by a sales volume (three-month moving average) increase of 38.6% in February from 12.7% in December 2020 (Exhibit 1). The average selling price (ASP) rose 12.4% (three-month moving average) year-on-year in February (up from 8.1% growth in December 2020). » In the first two months of 2021, national contracted sales value increased 143.5% year-on-year because of the low base last year as a result of the coronavirus disruptions. » We expect national sales value growth in rest of 2021 to moderate as a tightened credit environment will slow growth for both ASP and sales volume. The growth is likely to be front-loaded because of the low base in H1 2020 when sales were disrupted by the coronavirus outbreak. » Year-on-year contracted sales value growth (three-month moving average) for the 30 developers we track (of the 70 we rate) accelerated to 63.4% in February from 25.5% in December 2020 and 17.5% in November 2020 (Exhibit 2). Still, this underperformed the national market. Nevertheless, we expect our rated developers will outperform the general market because of their strong sales execution abilities, branding and better access to funding. » Among the 70 rated Chinese developers, Greentown China Holdings Limited (Ba3 stable) recorded the highest year-on-year contracted sales growth for the first two months of 2021 (405%), followed by Hopson Development Holdings Limited (B2 stable) (316%), Agile Group Holdings Limited (Ba2 stable) (232%), and Logan Group Company Limited (Ba2 stable) (222%). » Property prices continued to grow in February (Exhibit 3). According to residential property sales prices in 70 large and medium-sized cities released by the National Bureau of Statistics, the pace of growth increased to 4.5% and 3.5% for Tier 2 and lower-tier cities, from 4.1% and 3.3% in December 2020. Meanwhile, price growth in Tier 1 cities rose further in February, to 4.8% from 4.0% in December 2020 and 3.9% in November 2020. » Inventory levels across different city tiers remained at a healthy level in February. Inventory at Tier 1, Tier 2 and lower-tier cities were 7.8 months, 11.7 months and 6.5 months, respectively, largely stable from 7.8 months, 10.2 months and 6.4 months in December (Exhibit 4). Exhibit 1 National sales value growth (three-month moving average) recorded strong growth in February because of the low base in 2020 3-Month Moving Average National Sales YOY Change (left axis) 3-Month Moving Average Sales of 30 Tracked Issuers YOY change (left axis) Market Share of 30 Tracked Issuers Measured by 12-Month Moving Average Sales (right axis) 80% 60% 40% 20% 0% -20% -40% Sources: National Bureau of Statistics of China, company information This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history. 2 30 March 2021 Property – China: China Property Focus: Very strong sales growth unsustainable amid tight regulations MOODY'S INVESTORS SERVICE CORPORATES Exhibit 2 Year-to-date contracted sales and year-on-year growth of the 30 developers we track 2021 YTD Feb Contracted Sales Amount (Left axis) Year-on-Year Growth (Right axis) 140 450% 120 350% 100 80 250% 60 RMB RMB billion 150% 40 YTD YoY growth YoY YTD 50% 20 0 -50% Sources: Company information and China Real Estate Information System Exhibit 3 Year-on-year growth of new residential property prices across different city tiers increased in February Tier 1 cities Tier 2 cities Lower-tier cities 25% 20% 15% 10% Year Change Year - on - 5% Year 0% -5% Tier 1 cities: Beijing, Guangzhou, Shanghai and Shenzhen. Tier 2 cities included in this exhibit: Tianjin, Shijiazhuang, Taiyuan, Shenyang, Dalian, Changchun, Harbin, Nanjing, Hangzhou, Ningbo, Hefei, Fuzhou, Xiamen, Nanchang, Jinan, Qingdao, Zhengzhou, Wuhan, Changsha, Nanning, Haikou, Chongqing, Chengdu, Guiyang, Kunming, Xi’an, Lanzhou, Xining, Yinchuan, Urumqi, Wuxi, Hohhot and Sanya. Lower-tier cities in this exhibit are the remaining 70 major cities not listed above. Source: National Bureau of Statistics of China Exhibit 4 Inventory levels remain healthy across different city tiers Tier 1 cities Tier 2 cities Lower-tier cities 30 - 25 month month - 20 15 10 contracted salescontracted 5 sale homes based on three based on homes sale - for # of months # months ofit wouldtake selltoavailable 0 May-16 Aug-16 Nov-16 Feb-17 May-17 Aug-17 Nov-17 Feb-18 May-18 Aug-18 Nov-18 Feb-19 May-19 Aug-19 Nov-19 Feb-20 May-20 Aug-20 Nov-20 Feb-21 Tier 1 cities: Beijing, Shanghai, Guangzhou and Shenzhen. Tier 2 cities included in this exhibit: Tianjin, Chongqing, Shenyang, Fuzhou, Hangzhou, Zhengzhou, Nanjing, Wuhan, Xiamen, Xian, Changsha, Ningbo, Qingdao, Changchun, Suzhou and Chengdu. Lower-tier cities included in this exhibit: Tonglu, Lin'an, Jiande, Dongying, Huzhou, Jiangyin, Wuhu, Huaibei and Wenzhou. Source: China Real Estate Information System 3 30 March 2021 Property – China: China Property Focus: Very strong sales growth unsustainable amid tight regulations MOODY'S INVESTORS SERVICE CORPORATES Rated developers' offshore bond issuance weakened in Q1 2021 » Offshore bond issuance by our rated developers strike a low level of $1.5 billion in March, compared with an average monthly issuance of $4.4 billion in 2020 (Exhibit 5), partly because of weak investor sentiment due to China Fortune Land Development Co., Ltd. (Rating withdrawn)'s missed payment for its onshore bank loans, trust loans and offshore bonds. » In Q1 2021 (up to 26 March), offshore bond issuance was $17.4 billion, a decline of 27.3% from the $23.9 billion in the same period of 2020. » On the other hand, onshore bond issuance by our rated developers increased to RMB17.3 billion, or $2.6 billion equivalent, in March 2021 (to 26 March), from RMB7.0 billion, or $1.1 billion, in February.
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