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China Property Weekly Digest Summary (Issue No. 57)

Core Content

This report provides an overview of the Chinese property market dynamics as of late November 2013, with a focus on the impact of local policy changes, sales performance, and key project developments. It highlights the continued tightening of property controls in many cities, the performance of a specific project by Sino-Ocean Land, and the valuation trends for developers in the sector.

Main Points

Project of the Week: Sino-Ocean Land - Beijing Ocean Palace

• Project Type: Low-rise, featuring plain villas and townhouses.
• Location: Yizhuang, Beijing.
• Unit Sizes: Plain villas range from 230 to 410 sqm, townhouses from 270 to 560 sqm.
• ASP (Average Selling Price): Rmb42,000/sqm.
• Sales Performance:
  • 45 out of 54 units sold on the latest launch day in late October.
  • Achieved 100% of its 2013 sales target of Rmb2bn by end-October.
  • Saleable resources: Rmb2.5bn.
  • 2014 target: Rmb2.5bn.
  • Expected gross margin: 41%, net margin: 19%.
• Project Details:
  • Planned GFA: 433,000 sqm.
  • Saleable GFA: 385,000 sqm.
  • Land cost: Rmb12.92bn.
  • Construction cost: Rmb8bn.
  • Finance cost (capitalized): Rmb400m.
  • Total development cost: Rmb20.92bn.
  • Gross profit: Rmb16.448bn.

Policy Update

• Tightening Measures:
  • 13 Tier I/II cities tightened local property policies since October.
  • Cities such as Nanjing, Hangzhou, Fuzhou, and Xi'an introduced cooling measures, including raising down payments and increasing land supply.
• Loosening Measures:
  • Xuzhou loosened its home purchase restrictions to promote housing destocking.
  • Urumqi adjusted HPF mortgage policies to increase the mortgage cap and extend eligibility periods.
• National Policy:
  • The government unveiled a new reform roadmap, including relaxing the one-child policy and accelerating housing registry and real estate tax legislation.

Weekly Sales Performance

• Tier I Cities:
  • 10 projects launched, offering 3,063 units, with an average sale-through rate of 70%.
  • Weekly GFA sales: 218,000 sqm.
  • Weekly ASP growth: 11%.
  • Beijing: GFA sales down 25%, ASP up 1%.
  • Shanghai: GFA sales up 17%, ASP down 1%.
  • Shenzhen: GFA sales up 20%, ASP up 1%.
  • Guangzhou: GFA sales down 12%, ASP up 41%.
• Tier II Cities:
  • 20 projects launched, offering 6,189 units, with an average sale-through rate of 60%.
  • Weekly GFA sales: 190,000 sqm.
  • Weekly ASP growth: 9%.
  • Wuhan had 15 projects launched, with significant GFA sales and ASP changes.
• Tier III Cities:
  • 10 projects launched, offering 76,000 sqm.
  • Weekly GFA sales: 76,000 sqm.
  • Weekly ASP growth: 6%.
  • Cities like Dongguan and Nanchong saw varied performance in sales and ASP.

Inventory Level

• Average Weeks to Digest Inventory: 53 weeks.
• Key Cities:
  • Beijing: 7,514,000 sqm, 41 weeks.
  • Shanghai: 9,747,000 sqm, 24 weeks.
  • Shenzhen: 3,434,000 sqm, 35 weeks.
  • Guangzhou: 7,143,000 sqm, 34 weeks.
  • Hangzhou: 6,734,000 sqm, 95 weeks.
  • Suzhou: 6,539,000 sqm, 44 weeks.
  • Nanning: 5,367,000 sqm, 38 weeks.
  • Nanchong: 0 sqm, 0 weeks.

Market Valuation

• The sector is currently trading at:
  • 6.5x FY14 PE.
  • 0.9x P/BV.
  • 50% discount to NAV, compared to historical averages of 10x PE, 1.2x P/BV, and 37% discount to NAV.
• The central government is promoting a market-driven economy, but tightening policies are expected to continue until optimal supply and demand dynamics are achieved.
• Recommended Developers: COLI, CR Land, Country Garden, COGO, and Franshion.

Key Information

• Sales Trends:
  • Sales volumes rose 0% in Tier I, 9% in Tier II, and 6% in Tier III cities week-over-week.
  • For the four weeks of November, sales volumes fell 19% and 13% in Tier I and III cities, respectively, but grew 9% in Tier II cities.
• ASP Trends:
  • ASPs continued to rise 5% in Tier I, 2% in Tier II, and 1% in Tier III cities month-over-month.
  • In Tier I cities, ASPs increased 11%.
• Local Sales Personnel Outlook:
  • Salespersons in Beijing do not expect another launch by year-end due to meeting their targets and tightened local controls.
• Market Outlook:
  • The report suggests that investors should focus on the fundamentals and sustainability of developers.
  • There is a trend of local governments tightening property controls, which is expected to continue.
  • Xuzhou is an exception, as it is loosening its home purchase restrictions to promote housing destocking.

Conclusion

The Chinese property market continues to experience a mix of tightening controls and varied sales performance across different tiers of cities. The report emphasizes the importance of focusing on reputable developers and their long-term sustainability, while highlighting the performance of Sino-Ocean Land's Ocean Palace project and the policy changes impacting the market.