20140526-高盛-Signs_of_office_stabilization_amid_talk_of_loosening,_slower_retail_27页_823kb

Hong Kong Real Estate Market Summary

Core Content and Key Insights

The Hong Kong real estate market is currently experiencing a shift from growth to value, with major property stocks showing signs of recovery in performance relative to major benchmark indices over the past two months. This is attributed to the potential for mean reversion, as the valuation gap between new and old economy sectors has been deemed unsustainable.

The market is showing stabilization in the office sector, with two consecutive quarters of positive take-up since November 2013. However, the return of grade-A office rents to an upcycle is not yet clear. In contrast, the retail sector is under pressure due to slower sales growth and higher occupancy costs, which limit the potential for rent increases.

Main Points

• Mean Reversion Trade: Property stocks are expected to continue benefiting from the mean reversion trade due to the valuation gap between new and old economy sectors.
• Office Market: Positive signs of stabilization are observed, but there is still uncertainty regarding when rent will rise.
• Retail Market: The outlook for retail landlords is deteriorating, leading to a downgrade of Hysan to Neutral from Buy.
• Policy Loosening: It is considered premature to expect significant policy loosening due to the unaffordable nature of house prices and the continued downward pressure on housing prices.
• Stock Recommendations: The top picks for office-related stocks are Swire Properties and Hongkong Land. For developers, CK and SHKP are preferred due to their exposure to mass-market projects, which can facilitate faster asset turnover.
• Valuation Adjustments: Target prices and NAV discounts have been revised for several stocks, reflecting updated assumptions and sector performance.

Key Information

• Rating Changes:

  • Swire Properties: Buy (unchanged)
  • Kerry Properties: Buy (unchanged)
  • Hang Lung Properties: Buy (unchanged)
  • SHKP: Buy (unchanged)
  • Hysan: Downgraded to Neutral from Buy
  • Great Eagle: Sell (unchanged)
  • Champion REIT: Sell (unchanged)

• Target Price and NAV Discount Adjustments:

  • Swire Properties: Target price increased by 2%, NAV discount decreased by 33% to 30%
  • Kerry Properties: Target price decreased by 19%, NAV discount decreased by 53% to 53%
  • Hang Lung Properties: Target price decreased by 10%, NAV discount decreased by 39% to 40%
  • SHKP: Target price decreased by 3%, NAV discount decreased by 38% to 37%
  • Hysan: Target price decreased by 7%, NAV discount decreased by 37% to 36%
  • New World Development: Target price increased by 2%, NAV discount increased by 55% to 55%

• Property Price and Rent Assumptions:

  • Office Rent Growth: Expected to remain at 0% for 2014E, 8-10% for 2015E, and 5% for 2016E
  • Retail Rent Growth: Expected to remain at 0% for 2014E and 2015E, with 3% for 2016E
  • Residential Price Growth: Expected to decline by 5% in 2014E, 10% in 2015E, and 5% in 2016E

• Key Risks:

  • Abrupt Economic Slowdown
  • Faster-than-Expected Interest Rate Hikes

Summary of Rating and Target Price Changes

• On Conviction List.
  Source: Goldman Sachs Global Investment Research.

Valuation Summary

• On Conviction List.
  Source: Datastream, Goldman Sachs Global Investment Research.