China homebuilders to adjust to slower sales in 2017: Fitch

Contracted home sales could decline by 15%.

Fitch Ratings expects primary residential contracted sales in China to drop by around 15% in 2017, following stellar growth of more than 40% in the first 10 months of 2016.

The reversal, it said, is due mainly to dampened demand in most Tier 2 cities after a series of tightening policies by the local governments.

Fitch also expects the de-stocking pressure in weak Tier 2 cities and Tier 3 cities to be exacerbated during a market downturn in 2017.

However, it believes that the overall market will maintain stable prices, given the strong liquidity position that homebuilders had built up during the industry peak in 2016.

Fitch expects the largest of its rated homebuilders to keep up a steady speed of land acquisitions in 2017, bolstered by having the lowest average land cost in the industry.

Second-tier market participants, it adds, will be under the biggest pressure to complement a quality land bank to maintain their market positions, while small homebuilders with a land-bank bottleneck will have to find alternative channels to source quality land in 2017 - or face liquidity issues in the next few years.