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China Property Weekly Digest Summary (Issue No. 84)

Core Content

This report provides an overview of the Chinese property market trends, policy updates, and project performance as of 2 July 2014. It highlights the ongoing efforts to stimulate demand through policy relaxation and credit support, particularly for first-time homebuyers. The report also includes insights on sales performance, inventory levels, and company updates, with a focus on key developers and their projects.

Main Points

Project of the Week: Sunac / Poly CN – Fontainebleau Chateau

• Location: Beijing Yizhuang
• Project Type: Apartment, townhouse, villa
• Major Unit Sizes: 95-145 square meters (sm)
• ASP (Average Selling Price): Rmb37,000-40,000/sm
• Sales Performance:
  • Phase I launched in October 2013 and was well received.
  • Phase II launched in May 2014 with a higher ASP.
  • Subscription sales on launch day: Rmb800m
  • Contracted sales in May: Rmb600m
  • Target sales for 2014: Over Rmb3bn
  • Saleable resources: Rmb5.1bn
• Margins:
  • Expected gross margin: 39%
  • Expected net margin: 18%
  • Higher margins expected for low-rise products with ASPs of Rmb58k-60k/sm

Policy Update

• HPR Relaxation: The first official relaxation of HPR (Home Purchase Restriction) policies, with Hohhot removing local HPR.
• Expected Trends: More low-tier cities may follow to restore market sentiment.
• Loan-to-Deposit Ratio Change: Banking regulator has announced changes that may help mortgage loans, especially for first-time buyers.
• Mortgage Policy Adjustments:
  • Anhui Huaibei revised mortgage caps and increased maximum loan terms.
  • Zhejiang Zhuji raised mortgage caps for high contributors.
  • Jiangsu Taizhou revised mortgage caps for first and second home buyers.
  • Wuhu offers interest subsidies for second home buyers.
  • Hangzhou and Dongguan introduced policies to limit price cuts.

Property Sales Performance

• Tier I Cities:
  • 14 projects launched (2,143 units), with an average sell-through rate of 72%.
  • Sales volumes increased by 11% week-over-week.
  • ASP increased by 7%.
• Tier II Cities:
  • 48 projects launched (9,319 units), with an average sell-through rate of 50%.
  • Sales volumes increased by 68% week-over-week in major Tier II cities.
  • ASP decreased by 1%.
• Tier III Cities:
  • Sales volumes fell by 18% year-over-year in the first 26 weeks of the year.
  • ASP for 100 cities decreased by 0.5% to Rmb10,923/sm, marking the second consecutive month of decline.
• Valuation:
  • The sector is trading at 5.6x FY14F PE, 0.6x P/BV, and 62% discount to NAV.
  • Some stocks are attractively valued, including Country Garden (2007.HK), COLI (688 HK), COGO (81 HK), and Shimao (813 HK).

Share Price Performance

• Share Price Trends:
  • Weekly performance (Jun 23–Jun 27) and YTD performance are included.
  • Daily volume data is also provided for the period.

Key Information

Sales and ASP Trends

• Tier I Cities:
  • Weekly GFA sales: 189,000 sm
  • Weekly ASP: Rmb21,884/sm
• Tier II Cities:
  • Weekly GFA sales: 149,000 sm
  • Weekly ASP: Rmb10,466/sm
• Tier III Cities:
  • Weekly GFA sales: 50,000 sm
  • Weekly ASP: Rmb5,944/sm

Inventory Levels

• Inventory (in 000 sm):
  • Beijing: 9,881
  • Shanghai: 11,070
  • Shenzhen: 3,276
  • Guangzhou: 8,498
  • Hangzhou: 7,743
  • Suzhou: 8,340
  • Qingdao: 16,911
  • Nanjing: 5,405
  • Fuzhou: 3,453
  • Hefei: 232,000 sm
  • Shijiazhuang: 132,000 sm
• Weeks to Digest Inventory:
  • Beijing: 83 weeks
  • Shanghai: 37 weeks
  • Shenzhen: 61 weeks
  • Guangzhou: 49 weeks
  • Hangzhou: 132 weeks
  • Suzhou: 55 weeks
  • Qingdao: 147 weeks
  • Nanjing: 46 weeks
  • Fuzhou: 117 weeks
  • Hefei: 44 weeks
  • Average: 90 weeks

News and Company Updates

• National News:
  • Pilot program for senior citizens to use homes as collateral for pensions.
  • CBRC announced changes to loan-to-deposit ratio calculations.
  • China Construction Bank purchased a building in London for US$187m.
• Regional News:
  • South China: Huizhou's first Courtyard Hotel in Boluo Town expected to open late-Jun/early-Jul.
  • Central China: Changsha's underground shopping center started construction; Zhengzhou's Meisheng Sheraton Hotel expected to open by end of August.
  • West China: Chengdu announced a stimulus package for economic growth and property market.

Conclusion

The report outlines the ongoing support for the property market through policy relaxation and credit easing, particularly for first-time homebuyers. It highlights the performance of key projects, such as Fontainebleau Chateau, and notes the positive impact of policy changes on certain developers. Despite weak sales in the short term, the sector remains attractively valued, with potential for recovery as more cities adopt supportive measures. Inventory levels are high, with a significant number of weeks required to digest, indicating a need for continued policy support and market stimulation.