China's strong property sales may not improve developers' financials

BEIJING - China's housing sales will maintain a rising trend next year, but the real estate destocking may not significantly improve developers' financial situation, according to a report released by Fitch Ratings on Thursday.

Rising demand from home upgrades and loosened monetary policy have been reviving China's property market, and Fitch expects this trend to continue in the next two years.

Property sales between January and October reached 5.47 trillion yuan (850 billion U.S. dollars), exceeding the previous peak of 5.15 trillion yuan in the January-October period in 2013. The sales value surged 14.9 percent from the amount registered in the same period last year.

But Fitch said the robust recovery in sales does not mean real estate builders can count on better financial performance.

Destocking will be a prolonged process in small and medium-sized cities as demand growth from first-time homebuyers is offset by a population outflow to the more developed big cities, according to the rating agency.

It also predicted that Chinese property developers will spend more next year building more houses.

"The low level of construction expenditures will be reversed by the second half of 2016, driven by narrowing housing completion and contracted sales figures," Fitch said.

Continued growth in land prices will squeeze property developers' margins and operating cash flows, Fitch said.