Fitch Ratings, a major credit rating agency, has assigned a negative outlook for China's residential property sector this year, the firm said in a report on January 20.

Decelerating economic growth stemming from the global economic crisis, and negative wealth effect arising from a weak local stock market, will continue to depress market sentiment, Fitch said.

Uncertainty in the employment market is also eroding buyers' confidence, the ratings agency said.

Short-term supply, as indicated by housing starts and floor area under construction, is also on the high side. Homebuilders are also keen on securing greater cash flow by speeding up construction and presales, it said.

The medium to long-term picture for the residential property market, on the contrary, is rather positive.

There have been very few land bank acquisitions since the fourth quarter of 2007, indicating that supply of new units in the three to five-year timeframe will be low. Additionally, the government policy to maintain 1.8 billion mu (1.2 million square kilometers) during the period of the 11th Five-Year Plan (2006-2010) also limits the supply of new land for residential property development.

Fitch also does not see any change in the long-term fundamentals on the demand side. The current economic slowdown is not going to have any impact on the positive longer-term demographics and urbanization trend. Demand from upgraders will resurface once the economic growth is on the right track again, the ratings agency said.

(China Daily January 21, 2009)