Which developers will be the winners and losers in APAC’s housing market?

Developers’ profitability will remain constrained by weak homebuyer sentiment.

Despite improving housing affordability, Moody’s said in a report that subdued homebuyer sentiment will continue to constrain the revenue and profitability of property developers it rates in some parts of Asia-Pacific over the next six to 12 months.

Here’s more from Moody’s Investor Service:

In Hong Kong, we expect developers' property sales volumes will increase over 2023, but only from a low base last year, with elevated interest rates and capital market volatility continuing to weigh on homebuyer sentiment. We also expect developers will adopt a conservative pricing strategy in the residential market to maintain sell rates as they complete a high number of developments over the year. 

We rate four companies — Sun Hung Kai Properties Limited (A1 stable), CK Asset Holdings Limited (A2 stable), Wheelock and Company Limited (A3 stable) and Nan Fung International Holdings Limited (Baa3 stable) — that generate a significant portion of their earnings from residential property development in Hong Kong. We expect most of these companies' development incomes will decline in the fiscal year ending 31 December 2023, largely because of poor sales over the last two years.

In Australia, high interest rates have reduced prospective buyers’ capacity to borrow and have strained affordability. Still, housing demand remains strong, fueled by low unemployment and strong migration into Australia.

Although housing affordability will remain a strain for homebuyers while interest rates are high, population growth will foster strong demand for housing over the medium term. Stockland Group (A3 stable) and Mirvac Group (A3 stable), which are the two companies we rate with significant exposure to residential property development in Australia, will benefit from the strong demand for housing.

In Japan, the real estate companies we rate have a range of businesses and earn a significant share of their earnings from commercial real estate. Consequently, residential housing affordability fluctuations will not materially influence the credit quality of these companies. Similarly, in Indonesia, we do not think the slight improvement in housing affordability this year will influence the credit quality of property developers we rate.