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China Property Weekly Digest Summary (Issue No. 53)

Core Content Overview

This report provides a detailed analysis of the Chinese property market, focusing on developments in Tier I, II, and III cities, policy updates, and key projects. It also includes insights into sales performance, inventory levels, and company updates, particularly highlighting the performance of Sunac/Greentown's project "Melodious Manor" in Hangzhou and the broader market trends.

Main Points

Project of the Week: Sunac/Greentown - Melodious Manor Hangzhou

• Project Name: Melodious Manor
• City: Hangzhou
• Developer: Sunac/Greentown
• ASP (Apartment): Rmb20,000/sm
• ASP (Townhouse): Rmb33,000/sm
• Unit Sizes: Apartments (120-230 sm), Townhouses (300 sm)
• Sales Performance: Achieved 85% sales-through rate within two weeks of launch, contracted sales reached Rmb0.6bn by end-Oct, which is 75% of its 2013 target of Rmb0.8bn
• Expected ASPs for Next Launch: Rmb21,000/sm for apartments and Rmb35-38,000/sm for townhouses
• Profitability: Expected to deliver a gross margin of >35% and a net margin of 17%

Policy Update

• Shenzhen: Increased down payment requirement for second home purchases from 60% to 70%, and plans to further tighten mortgage policies
• Guangzhou: Rumored to follow Shenzhen's lead in raising down payment requirements to 70%
• Beijing: Suspended approvals of presales permits for projects with ASPs exceeding Rmb40k/sm
• Huizhou, Guangdong: Lowered mortgage cap for second home purchases from Rmb500k/household to Rmb400k/household
• Ministry of Housing: Formed an action plan to promote residential property industrialisation, with 20 cities to be selected as trial cities by 2015
• Malaysia: Introduced new measures to curb property speculation, including higher RPGT and removal of DIBS
• Chengdu: Updated HPF policies, including a mortgage cap of 20 times the outstanding account balance and restrictions on properties over 144 sm
• Guangyuan, Sichuan: Raised provident fund mortgage cap to Rmb400k/household

Weekly Sales Performance

• Tier I Cities:
  • Total Units Launched: 2,139
  • Average Sales-through Rate: 73%
  • Sales Volume Increase (w-o-w): 7%
  • ASP Increase (w-o-w): 1%
  • YTD Sales Increase: 18%
• Tier II Cities:
  • Total Units Launched: 2,621
  • Average Sales-through Rate: 71%
  • Sales Volume Increase (w-o-w): 14%
  • ASP Increase (w-o-w): 2%
  • YTD Sales Increase: 29%
• Tier III Cities:
  • Total Units Launched: 72
  • Average Sales-through Rate: 0%
  • Sales Volume Increase (w-o-w): -6%
  • ASP Increase (w-o-w): 2%
  • YTD Sales Increase: 43%

Inventory Level

• Inventory (000 sm):
  • Beijing: 7,174
  • Shanghai: 9,786
  • Shenzhen: 3,515
  • Guangzhou: 6,877
  • Hangzhou: 6,687
  • Ningbo: 10,211
  • Qingdao: 13,451
  • Average: 52 weeks to digest inventory

Key Information

Market Trends

• Overall Sales Growth: YTD sales volumes have increased by 18%, 29%, and 43% in Tier I, II, and III cities respectively
• ASP Growth: The average ASP in 100 monitored cities rose by 1.2% m-o-m in October
• Investor Recommendation: The sector is trading at 6.4x FY14 PE, 0.9x P/BV, and 49% discount to NAV, suggesting investors should focus on fundamentals and sustainability
• Top Picks: COLI, CR Land, COGO, and Franshion are recommended for investment

Company Update

• Major Land Acquisitions:
  • Greenland: Acquired land in Jinan, Mudanjiang, and another Jinan project
  • Vanke: Acquired land in Jinan
  • CR Land: Acquired land in Hangzhou and Chengdu
  • BJ Cap Land: Acquired land in Tianjin

Market Analysis

• Policy Impact: Continued policy tightening in Tier I cities has led to increased uncertainty, prompting a focus on developers with strong fundamentals
• Sales Performance: Strong buying sentiments in Tier I and II cities, with mixed results in Tier III cities
• Market Sentiment: Despite policy changes, sales volumes and ASPs have shown resilience in key Tier I and II cities

Conclusion

The Chinese property market continues to show mixed performance across different tiers of cities, with strong sales in Tier I and II cities and some challenges in Tier III. Policy updates suggest continued efforts to control speculation and stabilize prices, particularly in Tier I cities. Investors are advised to focus on reputable developers with sustainable business models, as the sector is currently undervalued relative to historical averages. The report highlights the performance of Sunac/Greentown's project and the broader implications of policy changes on the market.