Land price hike up margin pressures for Chinese developers

    Moody's Investors Service expects the rapid rise in land prices in recent months to increase margin pressures and business risk for Chinese property developers.
  At the same time, the growth in nationwide home sales has peaked and will moderate to a single-digit percentage for the twelve months ending May 2017, while the rise in property prices -- which has been strong so far -- will also likely show signs of slowing in some first-tier cities. 
  "The high-priced land purchases by developers in recent months have highlighted the rapid rise in land costs in major cities against the backdrop of intense competition," said Dylan Yeo, a Moody's Analyst.
  "The rapid growth in land costs will raise the developers' capital requirements and will also likely add margin pressure in the next 12-24 months. Furthermore, developers that acquired land with high unit costs in major cities will face increased business risks, given our expectation that price growth in these cities will moderate," added Yeo.
  Moody's conclusions were contained in the latest edition of its China Property Focus.
  The report says that nationwide home sales growth will moderate to a single-digit percentage for the 12 months ending May 2017, down from 16.6% in 2015 and 32.2% for the 12 months ended May 2016.
  This expectation reflects a comparison against the high base recorded in 2H 2015 and in 1Q 2016 when stimulus measures spurred strong sales growth. We also expect limited benefits from any further such measures, while selective regulatory tightening in higher-tier cities will lead to lower demand for property in those areas.
  Moody's further expects regulatory measures to remain broadly supportive in low-tier cities where inventory risks are still high, but further tightening will be implemented in high-tier cities experiencing rapid price growth.
  The rising trend of home prices for China's 70 major cities continued during May 2016. The number of cities registering year-on-year increases rose to 50 in May from 46 in April and the number reporting year-on-year rises of more than 5% rose to 18 from 17.