20140530-DBS_Group-Ground_Check__Hohhot,_Yinchuan_and_Changzhou__oversupply__20页_666kb

Ground Check Summary: Hohhot, Yinchuan, and Changzhou - Oversupply?

Core Content

This report analyzes the real estate market conditions in Hohhot, Yinchuan, and Changzhou, focusing on residential and commercial property supply and demand dynamics, inventory levels, and developer performance. It also includes valuation insights for various property developers across different tiers in China.

Key Findings

Residential Market

• Inventory Levels: Inventory in Hohhot is reported to be around 11 months, which is better than press reports suggest. The inventory in Yinchuan and Changzhou is higher due to previous land sales.
• Supply Trends: Lower tier cities (Tier III) have seen a stabilization in the ratio of sales to new starts at around 60-65% over the past three years, compared to 80-60% in Tier I and II cities.
• Land Supply: Residential land supply and new starts are decreasing, which should gradually reduce inventory buildup.
• Sales Performance: Sales in Yinchuan and Hohhot have been slower compared to the same period last year. Developers expect a slower sell-through rate in 2015.

Commercial Market

• Oversupply Concerns: Commercial land supply has grown faster than residential (42% vs. 23% annually over the past five years), leading to serious oversupply in office segments, particularly in Hohhot and Yinchuan.
• Developer Risks: Developers like Greenland and Shui On have faced challenges in selling commercial properties, with Greenland's Central Place project in Yinchuan achieving only a 31% sell-through rate last year.
• Retail Performance: Retail properties are performing better than office in these cities due to a lack of well-managed shopping malls and limited e-commerce adoption in northern cities.
• Government Policies: Local governments have initiated frequent meetings with developers to understand market movements, but no major policies have been introduced to boost sales. The HPR (Housing Purchase Restriction) policy is loosely implemented, with expectations of loosening to improve sentiment.

Market Outlook

• Provincial Capitals: Despite current slowdowns, Hohhot and Yinchuan are seen as having long-term potential due to their large catchment areas.
• Infrastructure: A high-speed train connecting Hohhot to Beijing is expected to boost the local economy and increase property demand.
• "Big Yinchuan" Plan: The government's initiative to expand Yinchuan's catchment area is expected to support property demand in the long run.
• Trade Plans: Future trade agreements with Central Asia are expected to boost Yinchuan's economy.

Developer Recommendations

• Top Picks: Country Garden, COLI, Shimao, and COGO are highlighted as top picks due to their potential and current market position.
• Hold/Recommendations: Developers like Greenland, Shui On, and Sino-Ocean Land are recommended to be cautious or held due to risks in commercial property sales.

Valuation Insights

Tier 1 Developers

• China Overseas: Target price HK$29.84, recommendation: Buy
• Country Garden: Target price HK$6.22, recommendation: Buy
• CR Land: Target price HK$21.60, recommendation: Buy
• Evergrande: Target price HK$4.43, recommendation: Buy
• Longfor: Recommendation: NR (No Recommendation)
• Shimao Property: Target price HK$25.83, recommendation: Buy
• China Vanke 'B': Recommendation: NR

Tier 2 Developers

• Agile Property: Target price HK$10.29, recommendation: Buy
• COGO: Target price HK$10.50, recommendation: Buy
• Greentown: Recommendation: NR
• Guangzhou R&F: Recommendation: NR
• Hopson Dev: Recommendation: NR
• KWG Property: Recommendation: NR
• Poly (Hong Kong): Recommendation: NR
• Shui On Land: Target price HK$1.95, recommendation: Hold
• Sino-Ocean Land: Target price HK$4.50, recommendation: Hold
• Soho China: Target price HK$6.47, recommendation: Hold
• Sunac China: Recommendation: NR
• Yanlord Land: Target price HK$2.03, recommendation: Hold
• Yuexiu Property: Target price HK$2.03, recommendation: Buy

Tier 3 Developers

• BJ Cap Land 'H': Target price HK$2.57, recommendation: NR
• BJ North Star 'H': Target price HK$1.78, recommendation: NR
• C C Land: Recommendation: Hold
• Central China: Recommendation: Buy
• China SCE: Recommendation: NR
• CIFI Holdings: Recommendation: NR
• Glorious Property: Recommendation: NR
• Minmetals Land: Recommendation: NR
• Powerlong: Recommendation: NR
• Renhe Commercial: Recommendation: NR
• Road King: Recommendation: NR
• Greenland: Target price HK$5.78, recommendation: Buy
• SRE Group: Recommendation: NR
• Yuzhou Properties: Recommendation: NR
• Zhong An: Recommendation: NR

Summary Table

Conclusion

While residential oversupply in lower tier cities is overstated, commercial properties face more significant challenges. Developers must remain cautious about commercial land supply and demand imbalances. The long-term potential of provincial capitals like Hohhot and Yinchuan is still strong, supported by infrastructure and government initiatives. Valuation data suggests that some developers, particularly those in Tier 1 and Tier 2, are undervalued and may present good investment opportunities.