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China Property Weekly Digest Summary (Issue No. 49)

Core Content

This report provides an overview of the Chinese property market, focusing on land market trends, property sales performance, and policy updates as of 9 October 2013. It also includes insights into key projects, company updates, and market valuations.

Main Points

Land Market Trends

• Land market likely to remain strong: Despite the recent slowdown in property sales during the Golden Week, the land market is expected to stay robust due to increased land supply and higher land prices.
• Project of the Week: COLI - Guangzhou Glory City is highlighted as a key project. It is selling at Rmb15k–16k/sm with fittings, compared to Rmb12k/sm in its first phase. Prices are expected to rise to Rmb20–25k/sm.
• Land cost comparison: Kaisa bought a site nearby at Rmb11,812/sm, while COLI's land cost is around Rmb4k/sm.
• Sales performance: The project has Rmb4bn in saleable resources for 2013, with YTD sales exceeding Rmb3bn (its FY13 target) and Rmb1bn in sales in 2012. The project has a good sales traffic with eight group visitors.
• Profitability: Based on an ASP of Rmb16k/sm, the project is expected to deliver 33% gross margin and 16% net margin.

Policy Update

• Beijing: Likely to meet its 2013 land supply target of 8.5m sm, with Oct land supply expected to be high (1.5m sm).
• Shenzhen: Accelerating land supply to achieve 20% higher than the past five-year average for FY13.
• Hangzhou: Launching over 550k sm of land for auction with a total starting price of Rmb3.6bn.
• Local policy changes:
  • Chengdu increased downpayment for HPF from 20% to 30% and reduced mortgage term from 30 to 20 years.
  • Baotou relaxed HPF policies, increasing the cap from Rmb300k to Rmb500k and extending mortgage term to 30 years.
  • Nanjing required 33 SOE developers to exit commodity housing development.
  • Shenzhen adjusted ordinary housing definitions and tax policies.
  • Zhengzhou tightened property controls with restrictions on non-local buyers and pre-sales permits.
  • Wenzhou introduced policies to allow trading of rural land property rights and adjusted HPR policies.

Sales Performance

• Golden Week slowdown: Sales volume dropped significantly (67% / 49% / 38% w-o-w) and (55% / 48% / 18% y-o-y) in Tier I, II, and III cities, respectively.
• ASP trends: ASPs increased slightly in Tier II cities and remained stable in Tier III cities.
• New launches:
  • Tier I cities: 13 projects launched, 3,303 units, average sale-through rate of 70%.
  • Tier II cities: 43 projects launched, 9,557 units, average sale-through rate of 71%.
  • Tier III cities: Data not fully available, but trends show mixed performance with some cities experiencing significant declines.

Key Information

Project of the Week: COLI - Guangzhou Glory City

• City: Guangzhou
• Developer: COLI
• Site Area: 390,000 sm
• Planned GFA: 1,120,000 sm
• Plot Ratio: 2.87
• Land Cost: Rmb3,512/sm
• Construction Cost: Rmb4,000/sm
• Fitting Cost: Rmb2,000/sm
• Finance Cost (capitalized): Rmb300/sm
• Total Development Cost: Rmb9,512/sm
• Unit Size: 50–142 sm
• 2013 Target Sales: Rmb3bn
• YTD Sales: Exceeded target with over Rmb3bn
• Target Sale-Through Rate: >75%
• Gross Profit: Rmb5,296m
• Gross Margin: 33%
• Net Profit: Rmb2,488m
• Net Margin: 16%

Market Valuation

• Sector valuation: Trading at 6.7x FY14 PE, 0.9x P/BV, and 47% discount to NAV.
• Recommendation: Investors should focus on quality developers with strong fundamentals and sustainability. Top picks include COLI and COGO.

Inventory Level

• Inventory (000 sm):
  • Beijing: 7,545
  • Shanghai: 9,698
  • Shenzhen: 2,946
  • Guangzhou: 6,877
  • Hangzhou: 6,119
  • Suzhou: 6,564
  • Ningbo: 9,773
  • Qingdao: 12,264
  • Nanjing: 4,415
  • Fuzhou: 2,165
  • Nanning: 5,903
  • Huizhou: 2,374
  • Zhoushan: 1,822
  • Dongying: 3,044
• Average weeks to digest inventory: 54 weeks

Recent Reports

• Shui On Land (272 HK): Splitting with strategic partner.
• Greenland (Hong Kong) (337 HK): First asset injection kicks in.
• Country Garden (2007 HK): Analyzing the impact of potential tightening policies in Malaysia.
• China Property Chart Book: Discusses tighter mortgage quotas potentially affecting 4Q sales.
• Sino-Ocean Land (3377.HK): Waiting for more support from China Life.
• Country Garden (2007.HK): Focused on growth.
• Greenland (HK) (337.HK): Compares Poly HK with COGO.
• China Property Sector: Notes slower cash collection in southern China.
• Yuexiu (123.HK): Needs to pace land banking.

Analysts

• Ken HE CFA: +86 21 6888 3375 | ken—he@hk.dbsvickers.com
• Carol WU: +852 2863 8841 | carol_wu@hk.dbsvickers.com
• Danielle Wang CFA: +852 2820 4915 | danielle_wang@hk.dbsvickers.com
• Andy YEE: +852 2971 1773 | andy_yee@hk.dbsvickers.com

Company Updates

• CR Land (1109.HK): Acquired land in Dalian, Liaoning with planned GFA of 116,145 sm and total land cost of Rmb421m.
• Zhong An (672.HK): Proposed to spin off China New City, which will focus on commercial property development in the Yangtze River Delta.
• Shui On Land (272.HK): Announced an asset swap with Trophy Property, allowing the fund to exit certain projects in exchange for a 33% stake in TPQ116. Presales are expected to start in 2015.

Conclusion

The report highlights a mixed performance in property sales across different tiers of cities, with a notable slowdown during the Golden Week. However, the land market is expected to remain strong due to increased supply and higher prices. Investors are advised to focus on quality developers, with COLI and COGO as top picks. Local governments have introduced various policies to control and promote the property market, indicating a continued regulatory influence on the sector.