Easing of mortgage terms credit positive for developers

    Moody's Investors Service said that new measures that ease mortgage lending conditions and relax tax rules are credit positive for China's property sector, as they will support demand and alleviate pressure on property sales.
  The measures - announced on 30 March by the People's Bank of China (PBOC), Ministry of Finance and State Administration of Taxation - include permitting commercial banks to lower their minimum down payment requirement to 40% from 60%-70% for buyers of second homes who have outstanding mortgages on their first homes, and relaxing tax rules on
property transactions.
  "These changes will make it easier for home buyers to obtain mortgages and lowers the cost of property transactions for borrowers who meet certain criteria," said Franco Leung, a Moody's Vice President -- Senior Analyst. "We believe the relaxed mortgage terms and housing taxes will encourage more prospective buyers to buy homes for their own use and as
an investment, and therefore support home sales."
  Among Moody's rated developers, those with high exposure in first- and second-tier cities and a focus on home upgraders will benefit most from the latest measures. These companies include China Overseas Land & Investment Limited (Baa1 stable)(00688), Longfor Properties Co. Ltd. (Ba1 stable)(00960), Gemdale Corporation (Ba1 negative), Shimao Property Holdings Limited (Ba2 stable)(00813), and KWG Property Holding Limited (Ba3 negative)(01813).
  That said, although the current policy relaxation will boost sales volume in the near term, Moody's said developers' pricing power is limited as market inventory remains high. Developers with weak liquidity will take this opportunity to offer promotions in an effort to boost sales.
  These supportive policy moves came on the back of very weak January and February national contracted sales, which declined by 16.7% year over year. China's housing prices remained under pressure in early 2015 due to high level of housing inventory, and the number of cities registering home price declines of more than 5% year on year increased to 52 in February from 38 in January, says the rating agency.
  The central bank's latest moves on the property sector reinforce the government's intention to support homeownership. While Moody's does not expect a material, immediate increase in the growth rate of mortgage loans, the rating agency expects that mortgage lending will continue to grow, thus supporting demand for its rated developers' properties.