20130730-DBS_Group-Credit_environment_better_than_market_expected_43页_972kb

Summary of Document Content

Core Content

The document provides an analysis of the current credit and property market environment in China, highlighting key developments in the real estate sector, including specific projects, policy updates, sales performance, and company activities. It also includes insights into the stock market performance and valuation metrics for major developers.

Main Points

Project of the Week: Shimao – Nanjing Jun Wang Villa

• Project Overview: A mid-end development in Nanjing, Xuanwu District, offering apartments and townhouses with unit sizes ranging from 90 to 180 square meters.
• Sales and Pricing:
  • Target sales: Rmb2.0-2.5bn based on Rmb3.0bn saleable resources.
  • Target sale-through rate: 67-83%.
  • ASP (Average Selling Price): Rmb18k/sm for apartments and Rmb21k/sm for townhouses.
• Performance Expectations:
  • Gross margin: 38-39%.
  • Net margin: 18%.
• Development Details:
  • Planned GFA: 295,000 sm.
  • Site GFA: 148,000 sm.
  • Land cost: Rmb6,433m.
  • Construction cost: Rmb3,500m (apartment) and Rmb5,000m (townhouse).
  • Finance cost (capitalized): Rmb175m (apartment) and Rmb250m (townhouse).
• Launch: The project is set to launch later this week, seven months after land acquisition, indicating a focus on accelerating asset turnover.
• Local Manager's Confidence: Confident in meeting sales targets due to prime location, limited competition, and high product quality.

Policy Update

• Mortgage Loan Trends:
  • Individual banks have raised mortgage rates to 1.1x benchmark rate, but major banks still use the benchmark rate for first home purchases in Guangzhou.
  • Some banks offer discounts (e.g., 10% off) to quality clients.
• Government Initiatives:
  • Xuzhou, Jiangsu: Provides interest subsidy for converting HPF (Housing Provident Fund) mortgage loans to commercial ones.
  • Ningxia: Allows HPF loans for lineal kin (parents, children, and spouses) and enables conversion from commercial to HPF mortgages.
  • Hangzhou: Provides interest subsidies for converting HPF to commercial mortgages.
  • Jiaxing: Adjusts HPF policies, increasing downpayment for second homes to 60% and allowing conversion from commercial to HPF mortgages.
  • Chaoyang, Liaoning: Lifts HPF mortgage cap to Rmb700k per household.
  • Xuancheng, Anhui: Lowers HPF mortgage cap to Rmb200k per household.
  • Shengzhou, Zhejiang: Extends mortgage term under HPF to 30 years.
  • Foshan, Guangdong: Lifts HPF mortgage cap to Rmb300k.
  • Beijing: Strengthens regulations on pre-sales approval and funds for commodity housing.

Property Sales Performance

• Recovery Trends: Continued recovery in sales across major cities.
• Tier I Cities:
  • 9 launches, 1,873 units, average sale-through rate: 55%.
  • Sales volume recovery: 16% w-o-w.
  • ASP increased by 11%.
• Tier II Cities:
  • 24 launches, 4,393 units, average sale-through rate: 73%.
  • Sales volume recovery: 8% w-o-w.
  • ASP increased by 2%.
• Tier III Cities:
  • Sales volume recovery: 6% w-o-w.
  • ASP increased by 3%.
• Month-over-Month (July):
  • Tier I cities: Sales fell 24% m-o-m.
  • Tier II cities: Sales fell 4% m-o-m.
  • Tier III cities: Sales fell 4% m-o-m.
• Sales Trends:
  • Tier I cities: Average ASP was flat.
  • Tier II cities: ASP fell 3% m-o-m.
  • Tier III cities: ASP rose 2% m-o-m.

Valuation and Market Trends

• Sector Valuation:
  • P/E: 7.0x FY13.
  • P/BV: 0.9x.
  • Discount to NAV: 50% (vs. historical average of 37%).
• Preferred Developers: Large caps such as COLI, Country Garden, and Shimao are favored due to macro uncertainties.

HSI (Hang Seng Index)

• Index Value: 21,954.

Key Developers and Recent Activities

• Sunac: Subsidiary entered into a 3-year loan facility agreement for US$400m.
• Yuzhou: Entered into an investment agreement with China Life Trustees for HK$1.5bn in 10% guaranteed bonds.
• Yuexiu: Announced a financing agreement with a bank for a fixed rate loan of up to US$50m.
• Sino-Ocean: Repurchased convertible securities valued at US$363m at 102.5% of principal plus interest.
• Central China (832.HK): Directors disposed of 2.8m shares.
• Greenland: Agreed to invest US$1bn in a mixed-use project in Los Angeles.

Land Market and Trust Activities

• Land Transaction Value: China's total land transaction value in 1H13 was Rmb1.7trn, up 77% y-o-y.
• Real Estate Trust Products: 60 trust companies issued 488 real estate trust products with a total value of Rmb147bn in 1H13, up 59% y-o-y.
• Land Price Caps: Guangzhou proposes to cap land prices at up to 145% of land transfer premium for residential sites.
• Land Auctions: Developers participated in Qianhai land transfer auctions, with Excellence winning the first two parcels.

Inventory Levels

• Inventory (000 sm):
  • Beijing: 8,030, weeks to digest: 47.
  • Shanghai: 9,519, weeks to digest: 34.
  • Shenzhen: 2,664, weeks to digest: 37.
  • Guangzhou: 6,385, weeks to digest: 40.
  • Hangzhou: 6,013, weeks to digest: 76.
  • Suzhou: 6,096, weeks to digest: 43.
  • Ningbo: 8,670, weeks to digest: 80.
  • Qingdao: 12,100, weeks to digest: 78.
  • Nanjing: 4,542, weeks to digest: 22.
  • Fuzhou: 2,320, weeks to digest: 75.
  • Nanning: 5,166, weeks to digest: 53.
  • Huizhou: 2,103, weeks to digest: 35.
  • Jiujiang: 1,321, weeks to digest: 58.
  • Nanchong: 3,639, weeks to digest: 69.
  • Zhoushan: 1,704, weeks to digest: 71.
  • Dongying: 2,251, weeks to digest: 49.
• Average Weeks to Digest Inventory: 54 weeks.

Recent Reports and Insights

• COGO (81.HK): Continues to outperform in Tier 3 cities.
• China Property Sector – Whose 1H DPS will surprise on the upside?: Released on 26 Jul.
• Shimao (813.HK): Successful execution reported on 19 Jul.
• Agile (3383.HK): Turnaround efforts reported on 16 Jul.
• China Property Sector – Marketing takeaway: Analysis on potential downside risk.
• China Property Sector – Strong YTD presales: Report on how presales can cushion downside risk.

Analysts

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

Conclusion

The document outlines a positive credit environment and continued recovery in property sales, with a focus on mid-end projects and large-cap developers. It highlights policy changes aimed at supporting first home purchases and the impact of these changes on market dynamics. The analysis also emphasizes the importance of inventory levels and the role of real estate trust products in the market.