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China Property Weekly Digest Summary (Issue No. 71)

Core Content

This report provides an overview of the Chinese property market, focusing on recent developments in property launches, sales performance, policy changes, and inventory levels. It also includes insights into key developers and their activities, along with market valuations and analyst notes.

Main Points

Project of the Week: COGO - Dragon Bay, Changzhou

• Launch Date: March 29, 2014
• Developer: COGO (81.HK)
• Units Offered: 426 units (88-130 sm)
• Units Sold: 280 units on launch day
• Presales Revenue: Expected to reach Rmb240m
• Average Selling Price (ASP): Rmb8,100/sm
• Gross Margin: 28%
• Net Margin: 13%
• Time to Acquire Land: 7 months (acquired on August 30, 2013)
• Total Development Cost: Rmb5,406 million
• Land Cost: Rmb2,406 million
• Construction Cost: Rmb3,000 million
• Finance Cost (Capitalized): Rmb135 million
• Total GFA with Presales Permit: 49,000 sm (45,000 residential + 4,000 commercial)
• Total Units with Presales Permit: 461 units (428 residential + 33 commercial)

Despite concerns over oversupply in Changzhou, the project saw strong demand, indicating resilience in the market.

Policy Update: Tier I Cities Face Pressure

• Guangzhou: Drafting new HPF mortgage measures, possibly suspending the second HPF mortgage and increasing downpayment ratios for second homes.
• Tianjin: Lowered transaction tax threshold, allowing more housing to be classified as "ordinary" and reducing tax burden for buyers.
• Nanjing: Implemented seven control measures, including land supply targets, price caps, presales approval restrictions, and fitting cost regulations.
• Hangzhou: Tightened HPF mortgage requirements for Xiaoshan district, increasing monthly contribution threshold.
• Suzhou: Introduced restrictions on commercial property sales, requiring developers to hold 1/3 of new commercial properties for 3 years.
• Chongqing, Qingdao, Kunming: Adjusted HPF mortgage policies, including downpayment requirements and caps.

These policies aim to support first-time homebuyers but may negatively impact upgraders.

Property Sales Performance

• Tier I Cities:

  • Total Units Launched: 3,097 (down 6% w-o-w)
  • Average Sell-through Rate: 72% (up from 60% in previous week)
  • Sales Volume Increase: 1% w-o-w
  • ASP Increase: 5% in Tier I, 3% in Tier II
  • Tier III ASP Decrease: 4% w-o-w

• Tier II Cities:

  • Total Units Launched: 9,085 (up 56% w-o-w)
  • Average Sell-through Rate: 60% (slightly improved from 2013 average of 65%)
  • Sales Volume Increase: 13% w-o-w
  • ASP Increase: 3% w-o-w

• Tier III Cities:

  • Total Units Launched: 52,000 (not specified)
  • Average Sell-through Rate: 8% (down from 2013 average of 23%)
  • Sales Volume Increase: 3% w-o-w
  • ASP Decrease: 4% w-o-w

• YTD Sales Volume Decline: 18% y-o-y

• ASPs in 100 Monitored Cities: Rmb11,000/sm in March (up 0.38% m-o-m), representing 22 consecutive months of growth since June 2012

Market Valuation

• Sector PE (FY14F): 5.7x
• Historical PE Troughs: 4.6x (2008), 3.9x (2011)
• Sector Re-rating Uncertain: Due to weak market sentiment
• Attractively Valued Stocks:
  • COLI (688 HK)
  • Franshion (817 HK)
  • Shimao (813 HK)

New Projects Launched (Mar 24 – Mar 30)

• Tier I Cities: 14 projects launched, 3,097 units
• Tier II Cities: 38 projects launched, 9,085 units
• Tier I Cities: 8 projects in Shanghai
• Tier II Cities: 15 projects in Wuhan

Inventory Level

• Inventory (000 sm):
  • Beijing: 7,927
  • Shanghai: 10,523
  • Shenzhen: 3,368
  • Guangzhou: 7,360
  • Hangzhou: 7,290
  • Suzhou: 6,843
  • Ningbo: 11,512
  • Qingdao: 15,127
  • Nanjing: 4,380
  • Tier III Average: 80 weeks to digest inventory

Key Information

Sales Trends

• Tier I Cities: Improved average sell-through rate and ASP, but YTD sales volume declined
• Tier II Cities: Stronger sales volume growth, slightly improved sell-through rate
• Tier III Cities: Declined ASP and lower sell-through rate compared to previous periods

Market Outlook

• No Near-Term Catalysts: The sector is expected to remain stable in the short term
• Policy Impact: Increased focus on first-time buyers, with potential negative effects on upgraders
• Valuation: Some stocks are undervalued, suggesting potential for re-rating in the long term

Recent Reports

• China Property Chart Book: Uncertain 2Q sales outlook
• Evergrande (3333.HK): Diversifying into water
• Franshion (817.HK): Unlocking hotel portfolio value
• Shimao (813.HK): Improving operations
• Yuexiu (123.HK): Better than expected sales target despite weak sentiment
• CR Land (1109.HK): Margins to improve

Analysts

• Andy YEE: +852 2971 1773 | andy_yee@hk.dbsvickers.com
• 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

Summary of Key Developers' Activities

News Update

• Unified Real Estate Registration System: China plans to implement it in three years.
• ASP in 100 Monitored Cities: Increased to Rmb11,000/sm in March, up 0.38% m-o-m, but growth rate slowed by 0.16ppts compared to previous month.

Conclusion

The Chinese property market shows mixed performance across Tier I, II, and III cities, with some areas experiencing strong sales and others facing challenges. While new projects are being launched, the sector remains under pressure from policy changes and weak market sentiment. Despite this, certain stocks are seen as attractively valued, indicating potential for long-term investment.