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China Property Weekly Digest Summary (Issue No. 93)

Core Content Overview

This report provides an update on the property market trends in China, focusing on mortgage policy changes, new project launches, sales performance, and inventory levels across different tiers of cities. It also includes insights into the sector valuation and recommendations for investment.

Main Points

Mortgage Policy Easing

• Policy Update: Multiple banks have reduced mortgage rates, offering discounts ranging up to 15% on the benchmark rate for first-time home buyers. This is a continuation of the policy easing trend seen in previous months.
• City-specific Changes:
  • Xining (Qinghai): The last central Chinese city to relax purchase restrictions.
  • Hangzhou: Fully lifted HPR (purchase restriction) on 29 August 2014, following earlier loosening for units over 140sm in the city centre.
  • Qingdao, Wuxi, Ningbo: All fully lifted HPR starting from 29 August 2014.
  • Haikou: Revised citizenship grant rules, allowing buyers of homes between 60-90sm, 90-120sm, and over 120sm to receive up to 2, 3, and 5 local IDs respectively.
  • Jiangxi Province: Lowered mortgage rates for first-time home buyers and reduced down payment requirements for second home buyers.
  • Other cities: Harbin, Xiamen, Jiangxi Nanchang, Kunming, Guiyang, and others also implemented HPR relaxations.

Project of the Week: Jinmao Residence Huanglong (Hangzhou)

• Location: Huanglong district, near the city centre.
• Launch: 6 September 2014, one week after Hangzhou lifted HPR.
• Unit Details: 278 bare-shell units, sizes ranging from 90 to 128 square meters.
• Average Selling Price (ASP): Rmb23,600 per square meter, comparable to nearby projects.
• Performance: 225 units sold on the first day, generating Rmb530 million, exceeding the original sales target of Rmb400 million.
• Costs and Margins:
  • Land Cost: Rmb13,840 per square meter.
  • Construction Cost: Rmb3,800 per square meter.
  • Finance Cost (capitalized): Rmb1,900 per square meter.
  • Total Development Cost: Rmb17,640 per square meter.
  • Gross Margin: 20%.
  • Net Margin: 10%.

Sales Performance

• Tier I Cities:
  • Total Units Launched: 2,927 units.
  • Average Sell-through Rate: 58% (flat week-over-week, lower than 2013 average of 69%).
  • Sales Trends:
    • Beijing: 128,000 square meters sold, -60% week-over-week, -42% year-over-year.
    • Shanghai: 252,000 square meters sold, -34% week-over-week, -32% year-over-year.
    • Shenzhen: 51,000 square meters sold, -34% week-over-week, -27% year-over-year.
    • Guangzhou: 93,000 square meters sold, -33% week-over-week, -49% year-over-year.
    • Tier I Average: -40% week-over-week, -38% year-over-year.
• Tier II Cities:
  • Total Units Launched: 2,689 units.
  • Average Sell-through Rate: 54% (slight improvement week-over-week, lower than 2013 average of 65%).
  • Sales Trends:
    • Hangzhou: 80,000 square meters sold, -48% week-over-week, 43% year-over-year.
    • Wuhan: 364,000 square meters sold, -12% week-over-week, 14% year-over-year.
    • Chongqing: 327,000 square meters sold, -27% week-over-week, -5% year-over-year.
    • Tier II Average: -9% week-over-week, 23% year-over-year.
• Tier III Cities:
  • Total Units Launched: 45,000 square meters.
  • Average Sell-through Rate: -4% week-over-week, -1% year-over-year.
  • Sales Trends:
    • Dongguan: 153,000 square meters sold, 77% week-over-week, 19% year-over-year.
    • Guilin: 17,000 square meters sold, 33% week-over-week, 82% year-over-year.
    • Tier III Average: -4% week-over-week, -1% year-over-year.

ASP Trends

• Tier I Cities:
  • Beijing: Rmb27,341 per square meter, +15% week-over-week, +20% year-over-year.
  • Shanghai: Rmb16,652 per square meter, -1% week-over-week, -15% year-over-year.
  • Shenzhen: Rmb22,630 per square meter, -9% week-over-week, -13% year-over-year.
  • Guangzhou: Rmb15,369 per square meter, +5% week-over-week, +25% year-over-year.
  • Tier I Average: Rmb20,498 per square meter, +3% week-over-week, +4% year-over-year.
• Tier II Cities:
  • Tier II Average: Rmb10,319 per square meter, -4% week-over-week, 0% year-over-year.
• Tier III Cities:
  • Tier III Average: Rmb5,814 per square meter, -4% week-over-week, -5% year-over-year.

Sector Valuation

• PE Ratio: 5.5x (vs. historical average of 9.2x).
• P/BV Ratio: 0.7x (vs. historical average of 1.1x).
• NAV Discount: 56% (vs. historical average of 38%).
• Investment View: The sector remains undemanding, with potential for re-rating due to policy easing and sales recovery.

Key Investment Picks

• Country Garden (2007.HK)
• COLI (688.HK)
• CR Land (1109.HK)
• Central China (832.HK)

Key Information

• Mortgage Easing: Continued policy relaxation is expected to support property sales from September onwards.
• Project Performance: Jinmao Residence Huanglong showed strong initial sales performance, exceeding the company's target.
• Inventory Levels:
  • Beijing: 10,684,000 square meters, 50 weeks to digest.
  • Shanghai: 12,018,000 square meters, 43 weeks to digest.
  • Tier I Average: 67 weeks to digest.
• Market Sentiment: Improved in some Tier II cities like Zhengzhou and Fuzhou.
• Sales Trends: Dropped significantly in Tier VII/III cities, while some Tier III cities showed growth.

Conclusion

The report highlights the ongoing trend of mortgage rate discounts and policy easing across various cities in China, with a particular focus on the impact on sales and project performance. While Tier I cities saw a decline in sales, Tier II and III cities showed mixed results. The property sector is undervalued, and the report recommends continued investment due to the potential for recovery and re-rating.