20131002-DBS_Group-China_Property_Weekly_Digest_More_effort_to_control_land_prices_43页_918kb

China Property Weekly Digest Summary (Issue No. 48)

Core Content

This report provides an overview of the Chinese property market, focusing on recent developments in land prices, sales performance, and policy updates across different tiers of cities. It also highlights a specific project, Wharf's Foshan Evian Buena Vista, and offers insights into the sector's valuation and investment outlook.

Main Points

Project of the Week: Wharf - Foshan Evian Buena Vista

• Project Overview: A joint venture between Wharf and China Merchants in Foshan Nanhai District.
• Launch Date: April 2012.
• Initial ASP: Rmb6.4k/sm.
• 2013 ASP: Rmb11.5k/sm, showing a significant increase.
• Sales Performance:
  • Launched 160 units in 2013 with over 90% sales-through rate.
  • YTD sales amounted to Rmb450m, reaching 75% of the full year target of Rmb600m.
• Sales Breakdown:
  • Sold 22 villas out of 35.
  • Sold nearly all of the 688 high-rise units.
• Profitability:
  • Estimated gross margin: 30%.
  • Estimated net margin: 14%.

Sales Performance

• Sales Growth:
  • Sales jumped between the Moon Festival and Golden Week holiday.
  • Sales volume increased by 69% in Tier I cities, 57% in Tier II, and 102% in Tier III cities compared to the previous week.
• ASP Trends:
  • ASP rose by 9% in Tier I cities, 3% in Tier II, and -1% in Tier III.
  • Beijing saw the highest increase in ASP with 27% w-o-w.
• Monthly Growth:
  • Sales volume increased by 8% m-o-m in September.
  • Tier I cities had the strongest growth at 24%.
  • Tier II cities grew by 6%, and Tier III cities by 2%.

Policy Update

• Beijing:
  • Auctions its first land for self-occupied property with a land price cap.
  • Bidders will compete based on the area of self-occupied properties they plan to build.
• Chengdu:
  • Increased down payment for HPF from 20% to 30%.
  • Reduced mortgage term from 30 years to 20 years.
• Baotou, Inner Mongolia:
  • Loosened HPF policies by increasing the cap from Rmb300k to Rmb500k.
  • Extended mortgage term from 20 years to 30 years.
• Nanjing:
  • Required 33 SOE developers to exit commodity housing development.
• Shenzhen:
  • Adjusted ordinary housing definitions and tax policies.
• Zhengzhou, Henan:
  • Tightened controls with restrictions on non-ordinary residential projects.
• Wuhu, Anhui:
  • Subsidized graduates for home purchases.
• Wenzhou, Zhejiang:
  • Allowed trading of rural land property rights.
• Other Cities:
  • Adjustments to HPR policies, interest subsidies for mortgage conversions, and HPF usage for family members.

Investment Outlook

• Sector Valuation:
  • Trading at 6.3x FY14 PE, 0.9x P/BV, and 50% discount to NAV.
  • Historical average: 10x 1.2x 37%.
• Recommendation:
  • Sector is expected to range trade due to lack of strong near-term catalysts.
  • Investors should focus on developers’ fundamentals.
• Top Picks:
  • COLO, COGO, and Country Garden.

Key Information

• Market Trends:
  • Sales have been strong, especially in Tier I cities.
  • ASP has increased in Tier I and II cities but decreased slightly in Tier III.
• Inventory Levels:
  • Average number of weeks to digest inventory: 56.
  • Beijing and Shanghai have relatively lower inventory levels compared to other cities.
• Company Updates:
  • Major land acquisitions by key developers, with Poly HK and SOHO showing notable activity.
  • Average land costs and premiums over asking prices vary by city and developer.

Summary Table

Conclusion

The Chinese property market continues to show mixed trends with strong sales performance in Tier I and II cities, and a range of policy updates aimed at controlling land prices and improving market stability. Developers like Wharf are seeing good results with their projects, while the sector as a whole is advised to focus on fundamentals due to inconsistent policy signals. The report highlights the importance of tracking both sales and inventory levels to understand market dynamics.