20130918-DBS_Group-China_Property_Sector_Ground_check__slower_cash_collection_in_southern_China_23页_893kb

Summary of "Ground check: slower cash collection in southern China"

Core Content

This report provides an analysis of the current state of the Chinese property sector, with a specific focus on southern China, particularly Guangdong. It highlights the impact of tightening mortgage approvals, rising property prices, and the challenges associated with mixed-use developments. The report also includes recommendations for developers and an overview of their financials and upcoming projects.

Main Points

• Mortgage Approval Slowdown:

  • Guangdong has tightened mortgage approvals due to bank quotas.
  • The mortgage rate for first-time homebuyers has increased to the PBOC rate, up from 0.9x previously.
  • Some developers are offering a 1.05x PBOC rate to expedite cash collection.
  • Developers are concerned that this slowdown may push contracted sales signing to next year, potentially affecting cash collection in 4Q.

• ASPs Rising Faster in Mass Market Segment:

  • Property prices have increased by more than 30% in some mass market projects over the past 9-12 months.
  • In Guangzhou and Shenzhen, ASPs rose 19% and 18% YoY respectively, with no sign of slowing down.
  • The strong ASP increase reduces the likelihood of policy loosening.

• Mixed-Use Development:

  • Developers like Greenland, Evergrande, and Yuexiu are building more mixed-use developments for land cost reduction, commercial diversification, and brand building.
  • However, mixed-use developments are costly and require strong expertise, which Chinese developers lack compared to Hong Kong and overseas counterparts.
  • Examples include the IFC in Guangzhou (by Yuexiu), which does not meet the standards of IFC in Hong Kong or Shanghai.

• Luxury Products:

  • Sales of luxury properties are challenging due to their high-end focus.
  • Discounts have helped improve sales, as seen in Agile Mountain and The Regency projects.
  • ASP for Agile Mountain was lowered to RMB 23K per square meter from over RMB 30K, representing a >10% discount.
  • The Regency project now sells at RMB 20K per square meter, down from RMB 25K in 2010.

• Sector Valuation and Outlook:

  • The sector is trading at 6.6x FY14 P/E and 48% discount to NAV.
  • The sector is expected to continue range trading due to the lack of strong near-term catalysts.
  • The report recommends focusing on developers' fundamentals and highlights COLI, COGO, and Country Garden as top picks.

Key Information

Developers with High Exposure to Guangdong Markets

ASP Increases YoY in Different Cities

• Guangzhou: 19% increase
• Shenzhen: 18% increase
• Other cities: Some projects saw >30% increases

Sensitivity Analysis: Monthly Payment vs. Mortgage Rate

Valuation Comparison Table

Conclusion

The property sector in southern China, particularly Guangdong, is facing challenges due to tighter mortgage approvals and rising ASPs. While the mass market segment continues to perform well, developers with significant exposure to Guangdong may face cash collection issues if the trend continues. Mixed-use developments are seen as a double-edged sword, offering potential benefits but also posing high risks. The report recommends focusing on developers with strong fundamentals, such as COLI, COGO, and Country Garden, and suggests the sector will range trade due to the lack of strong catalysts.