Chinese homebuilders to face increased competition, polarization in slower-growth environment in 2014; homebuilders' year-over-year contracted gross floor area growth in 2014 could fall to 5%-10% from 12% during the first 11 months of 2013: Fitch
December 9, 2013
– Link to Fitch Ratings' Report: 2014 Outlook: China Homebuilding
Fitch Ratings-Hong Kong-09 December 2013: Competition among Chinese homebuilders will intensify in a slower-growth environment in 2014, and polarisation of the developers will widen, Fitch Ratings says in a new report. Polarisation does not only happen among property companies of different scales, but also appears in different cities and different product types.
Fitch says Chinese homebuilders' year-on-year (yoy) contracted gross floor area (GFA) growth in 2014 could be only 5%-10% compared with the 12% achieved in the first 11 months of 2013 (for major 30 cities as reported by the data provider, WIND), because of the significantly higher base in 2013.
Tier 3 and 4 cities in general have not benefited much in the run-up in prices experienced by larger cities, mainly due to relatively weak purchasing power and sparse population. In addition, the seeming success achieved by home purchasing restrictions in moderating residential property prices has led to excess liquidity deployed in commercial properties. However, yield and occupancy rates remain limited except for well-located properties. Therefore, the lack of fundamentals makes lower-tier cities and commercial properties vulnerable to a downturn.
Fitch also stresses that smaller developers are likely to leverage further to expand their operational scale and become more competitive, because they do not have strong balance sheets and sufficient land banks typical of larger homebuilders. Not all smaller developers will be able to correctly balance the reduction in business risk with the increase in financial risk.
The outlook of the homebuilding sector in China is sensitive to two key factors: the uncertainties of government policies and the accessibility to funding sources. While Fitch expects home purchase restrictions to remain in 2014, any unexpected changes in China property market or its liquidity will cause downward pressure on the sector's outlook.
Fitch rates the following companies:
Beijing Capital Land Ltd. (BB+/Negative)
China Aoyuan Property Group Limited (B+/Stable)
China Properties Group Limited (B-/Stable)
CIFI Holdings (Group) Co Ltd (B+/Positive)
China Overseas Land & Investment Limited (BBB+/Stable)
China Vanke Co Ltd (BBB+/Stable)
Evergrande Real Estate Group Limited (BB/Stable)
Franshion Properties (China) Limited (BBB-/Stable)
Future Land Development Holdings Limited (B+/Stable)
Global Logistic Properties Limited (BBB+/Stable)
Golden Wheel Tiandi Holdings Company Limited (B/Stable)
Greenland Holding Group Company Limited (BBB-/Stable)
Guangzhou R&F Properties (BB/Positive)
Lai Fung Holdings (BB-/Stable)
Modern Land (China) Co., Limited (B/Stable)
Poly Real Estate Group Company Limited (BBB+/Stable)
Shanghai Zendai Property Limited (B/Stable)
Shimao Property Holdings Limited (BB/Stable)
Sunac China Holdings Limited (BB-/Stable)
Wuzhou International Holdings Limited (B/Stable)
Xinyuan Real Estate Co Ltd (B+/Stable)
Yuexiu Property Company Limited (BBB-/Stable)
The report '2014 Outlook: China Homebuilding' is available at www.fitchratings.com.
Additional information is available at www.fitchratings.com.