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China Property Weekly Digest Summary (Issue No. 78)

Core Content

This report provides an overview of the Chinese property market, focusing on recent policy changes, sales performance, and key projects in various cities. It also includes insights into the sector's valuation, share price performance, and land acquisition activities by major developers.

Main Points

1. Project of the Week: Evergrande Oasis, Lanzhou

• Project Name: Oasis
• Developer: Evergrande
• City: Lanzhou
• Unit Type: High-rise, fitted
• Major Unit Size: 90-100 sqm
• ASP (Average Selling Price): Rmb6,800/sqm
• Sales in 2013: c.Rmb730m
• Target Sales for 2014: c.Rmb2bn
• Expected Gross Margin: 12%
• Expected Net Margin: 5%

2. Policy Update

• Yangzhou: Loosened HPF (Housing Provident Fund) mortgage restrictions starting from 20 May 2014. Buyers can now use HPF for both down payments and mortgage loans, which reduces the upfront burden and supports demand in the end-user market.
• Shenyang: Raised the HPF mortgage cap to Rmb550k per couple and required at least six consecutive months of contributions.
• Changzhou: Facilitated conversion of HPF mortgages to commercial mortgages, with a subsidy on the interest rate difference starting from 19 May.
• Shangqiu: Increased mortgage cap to Rmb400k per household, extended loan terms to 30 years, and allowed conversion of commercial mortgages to HPF mortgages after one year of payments.
• Tongling County: Lowered the down payment requirement to 20% and reduced the contribution period to three consecutive months.
• Chengdu: Tightened residency requirements for non-local buyers, raising the minimum property size to 90sqm.
• Nanning: Allowed residents from five adjacent cities to purchase property within the city.
• Hangzhou Xiaoshan District: Offered a 2% subsidy for relocation buyers purchasing homes within one year of relocation.
• Hangzhou Xiaoshan District: Set a cap of Rmb10m on deposit requirements for land acquisitions.

3. Weekly Sales Performance

• Tier I Cities:
  • Total units launched: 2,090
  • Average sell-through rate: 72%
  • ASP decreased slightly by 1% w-o-w
  • Sales volume dropped by 16% w-o-w
  • Sales volume increased by 27% m-o-m
• Tier II Cities:
  • Total units launched: 3,904
  • Average sell-through rate: 54%
  • ASP increased by 0% w-o-w in some cities
  • Sales volume increased by 4.5% w-o-w
• Tier III Cities:
  • Sales volumes and ASPs showed mixed results, with some cities experiencing declines and others showing increases.
  • Overall, sales volume dropped by 18% y-o-y for the 51 cities tracked.

4. Sector Valuation

• The sector is currently trading at 5.3x FY14 PE and 0.6x P/BV, which is close to the 2011 troughs.
• While nationwide policy loosening is not expected soon, local support for first home purchases and continued local policy easing are anticipated to improve share price performance.

5. Recommended Stocks

• COLI (688 HK), COGO (81 HK), Country Garden (2007 HK), and Shimao (813 HK) are highlighted as favorable investments due to their potential for share price appreciation.

6. Share Price Performance

• The HSI (Hang Seng Index) was at 22,835.
• Weekly and year-to-date share price movements are detailed for key cities, with some showing positive trends and others experiencing declines.

7. Inventory Level

• The average number of weeks to digest inventory is 76 weeks.
• Key cities such as Beijing, Shanghai, and Guangzhou have significant inventory levels, with Beijing at 55 weeks and Shanghai at 45 weeks.

Key Information

• Sales Trends: Sales volumes in Tier I cities showed a slight decline week-over-week, while Tier II cities saw a modest increase.
• Policy Impact: Local policy adjustments, particularly in Yangzhou and Shangqiu, are aimed at boosting demand and improving affordability for homebuyers.
• Developer Activities: Major developers like Evergrande, Poly HK, and Gemdale have launched new projects and acquired land in various cities.
• Market Outlook: The report suggests selective investment in the property sector, emphasizing the potential for share price growth due to local policy support.

Conclusion

The report highlights the mixed performance of the property market, with local policy changes playing a crucial role in influencing sales and share prices. Evergrande's Oasis project in Lanzhou is a notable example of successful market entry, and the sector's valuation is seen as attractive despite the current economic climate. Investors are advised to selectively add positions in the sector, focusing on companies that benefit from local policy support and strong market demand.