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China Property Weekly Digest Summary (Issue No. 50)

Core Content Overview

This report provides a comprehensive analysis of the Chinese property market, focusing on sales performance, policy updates, and developments in key projects and companies. It highlights the sector's resilience and the ongoing regulatory environment, suggesting a focus on fundamentals for investors.

Main Points

Project of the Week: COLI - Nanjing Majestic

• Project Overview: COLI's Nanjing Majestic project is a high-rise, fitted apartment located in Pukou District, Nanjing.
• Pricing: The project is selling at Rmb10k/sm, up from Rmb8k/sm in 2012.
• Performance: It has met 80% of its full year sales target of Rmb1.5bn, compared to Rmb800mn in presales in 2012.
• Sales: A new block was launched on 30 September and sold out on the first day. The next launch is expected in November.
• Buyers' Portfolio: The percentage of end users has decreased from 90% in 2012 to 60% currently.
• Profitability: Based on an ASP of Rmb10k/sm, the project is expected to deliver gross and net margins of 27% and 16% respectively.

Policy Update

• Shenzhen: Plans to further tighten mortgage policies for second home buyers, potentially adjusting down payment ratios and mortgage rates to stabilize property prices.
• State Council Directive: Ordered an investigation into property agencies to prevent misleading market information that could stimulate price increases. This is seen as a short-term measure to prepare for more systemic policies.
• Chengdu: Adjusted HPF (Home Purchase Fund) policies, increasing down payment to 30% and reducing mortgage term to 20 years.
• Beijing: Increased land appreciation tax for second-hand property transactions to 5% from 1% if sellers cannot provide revaluation reports or original invoices.
• Baotou: Loosened HPF policies by increasing the mortgage cap to Rmb500k and extending the mortgage term to 30 years.
• Nanjing: Required 33 city-level SOE developers to exit the commodity housing development business.

Weekly Sales Performance

• Tier I Cities: 8 projects launched, offering 2,021 units, with an average sales-through rate of 80%. Sales volume increased by 161% w-o-w and 6% y-o-y. ASPs grew by 12% y-o-y.
• Tier II Cities: 11 projects launched, offering 1,883 units, with an average sales-through rate of 75%. Sales volume increased by 124% w-o-w and 23% y-o-y. ASPs grew by 1% y-o-y.
• Tier III Cities: 2,021 units launched, with an average sales-through rate of 349% w-o-w and 49% y-o-y. ASPs grew by 4% y-o-y.

Inventory Level

• Inventory Trends: The number of weeks to digest inventory varied across cities. For example, Beijing had 28 weeks, while Shanghai had 24 weeks.
• Average: Across all cities, the average number of weeks to digest inventory was 52.

Key Information

Market Sentiment

• Buyer Confidence: World Union Properties reported that the purchase confidence index in Q3 2013 reached a new high since 2011, with half of the buyers believing new government policies are unlikely.
• Residential Loans: PBOC reported that residential loans reached Rmb3.07tn in Q3 2013.

Company Updates

• Land Acquisitions: Key developers like Vanke, Greenland, and R&F have made significant land acquisitions in various cities, including Beijing, Foshan, and Hangzhou.
• Recent News: Franshion issued USD300m senior notes at 5.375% and invested in the primary development of Changsha Meixi Lake Area with a total investment of Rmb17.4bn.

Investment Recommendation

• Sector Valuation: The sector is trading at 6.7x FY14 PE, 0.9x P/BV, and 47% discount to NAV, compared to historical averages of 10x, 1.2x, and 37%.
• Top Picks: COLI and COGO are recommended as top picks due to their strong fundamentals and sustainability.

Upcoming Events

• Property Tour: A tour to Fujian and Shanghai from 29th October to 1st November 2013.

Conclusion

The Chinese property market remains robust, with strong sales performance across all tiers, driven by strong demand and limited supply. While policy tightening is ongoing, the focus should be on developers with strong fundamentals and sustainable business models. The report recommends keeping an eye on the upcoming property tour and the continued monitoring of policy developments.