Chinese property developers can withstand currency depreciation despite sales dip

The companies’ strong revenue will stand as buffers to renminbi depreciation.

Despite the slowing real estate market, property developers in China have the capacity to weather through a hypothetical 10% Renminbi depreciation, according to Moody’s Investors Service.

In a sign of challenging times, 29 out of 67 property developers in China reported decreasing sales growth - from 15% in July, down to 14.1% in August.

However, the same report shows that if the descending sales continue, Chinese developers can still weather a hypothetical 10% Renminbi depreciation thanks to their strong revenue shields.

"The developers' strong revenue and earnings over the next 12-18 months will provide a buffer against the negative effect of a depreciation of the renminbi against the US dollar, while the portion of debt denominated in renminbi also remains far larger than foreign currency debt," says Danny Chan, a Moody's Assistant Vice President and Analyst.

Stronger restrictions and a tighter financing accounted for the expected slow sales growth.

"We expect property sales will continue to slow for the rest of 2H 2019 from a high base in 2018, as financing conditions and regulatory measures will remain tight," says Chan.

Both China’s onshore and offshore bond issuances by property developers remained low amidst tight regulatory controls.

Onshore bond issuance decreased to $694m in September from $1.9b in August, and whilst the offshore bond issuance increased to $3.0b in September from $2.1b in August, the amount is still low, compared to the average of the first seven months of 2019.