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China Property Weekly Digest Summary (Issue No. 83)

Core Content Overview

This report provides a detailed analysis of the Chinese property market as of June 24, 2014, focusing on sales trends, policy updates, and company activities. It highlights the gradual recovery in sales, especially in Tier 2 cities, and the ongoing policy adjustments aimed at stimulating the market.

Main Points

Project of the Week

• Shunde Country Garden (Pan Pu Wan) Phase 2, Foshan:
  • Located between Foshan and Guangzhou, this project launched 36 townhouse units in April 2014 at Rmb8-10m/unit.
  • 35 out of 36 units were sold, generating c.Rmb490m in sales YTD (up from Rmb300m in 2013).
  • Phase 3 (122 townhouse units) is set for launch in July 2014, with an expected saleable value of c.Rmb800m and sales contribution of c.Rmb700m this year.
  • ASP for townhouses ranges from c.Rmb17-20k/sm (without fittings) to c.Rmb30k/sm (with fittings).
  • Expected gross margin of c.59% and net margin of c.28% for townhouses.
  • Lower margins are expected for apartments in other batches, at c.20% gross and c.11% net.

Policy Update

• Wuhu (Anhui):
  • Rumors suggest it may loosen home purchase subsidy requirements for university graduates, allowing them to receive subsidies immediately after graduation.
  • This is seen as a market-stimulating measure to attract local talents.
  • Average monthly sales in Wuhu dropped by 16% compared to 2013, and inventory levels are high at 16 months of sales.
• Other Cities:
  • Wenzhou and Guangzhou (Zengcheng, Conghua districts): Rumors of loosening HPR requirements.
  • Hangzhou: First city to require developers selling at 15% below ASP to reapply for sales permits.
  • Dongguan: Followed Hangzhou's policy to limit price cuts.
  • Shanghai, Suzhou, Wuxi, etc.: Adjustments to HPF mortgage policies, including increased caps and reduced contribution periods.

Sales Performance

• Tier 1 Cities:
  • Total units launched: 2,441 (up 15% w-o-w).
  • Average sell-through rate: 65%.
  • Sales volume increase: 2% w-o-w, 6% YTD compared to May's average.
  • ASP decrease: -2% w-o-w, with some cities showing declines of up to 19%.
• Tier 2 Cities:
  • Total units launched: 5,539 (up 35% w-o-w).
  • Average sell-through rate: 60%.
  • Sales volume increase: 7% w-o-w, 17% YTD compared to May's average.
  • ASP increase: 3% w-o-w, with some cities showing increases of up to 101%.
• Tier 3 Cities:
  • Total units launched: Varies, with some cities showing significant increases.
  • Average sell-through rate: 4%.
  • ASP increase: 1% w-o-w, with some cities showing increases of up to 123%.

Market Valuation

• The sector is trading at 5.2x FY14F PE, 0.6x P/BV, and 63% discount to NAV.
• This is below its historical average of 9.2x PE, 1.1x P/BV, and 37% discount to NAV.
• Despite weak sales in the near term, certain stocks like Country Garden (2007.HK), COLI (688 HK), COGO (81 HK), and Shimao (813 HK) are considered attractively valued.

Key Information

Summary of Sales Trends

• Tier 1 cities:
  • Beijing: GFA sales dropped 19% w-o-w, ASP increased 2%.
  • Shanghai: GFA sales increased 5% w-o-w, ASP decreased 6%.
  • Shenzhen: GFA sales increased 29% w-o-w, ASP decreased 7%.
  • Guangzhou: GFA sales dropped 10% w-o-w, ASP increased 3%.
• Tier 2 cities:
  • Hangzhou: GFA sales dropped 48% w-o-w, ASP decreased 19%.
  • Wuhan: GFA sales increased 360,000 sm, ASP decreased 12%.
  • Chengdu: GFA sales increased 31% w-o-w, ASP increased 12%.
• Tier 3 cities:
  • Dongguan: GFA sales dropped 12% w-o-w, ASP decreased 2%.
  • Zhongshan: GFA sales increased 151% w-o-w, ASP increased 112%.
  • Zhaoqing: GFA sales increased 2% w-o-w, ASP decreased 10%.

Inventory Levels

• Beijing: 9,910,000 sm, 84 weeks to digest.
• Shanghai: 11,191,000 sm, 39 weeks to digest.
• Guangzhou: 8,682,000 sm, 51 weeks to digest.
• Hangzhou: 7,700,000 sm, 144 weeks to digest.
• Tier III average: 73 weeks to digest inventory.

News Highlights

• Wuhu (Anhui): Rumors of relaxing home purchase subsidy requirements for university graduates.
• Wenzhou and Guangzhou: Rumors of loosening HPR requirements.
• Shenzhen: Announced plan to build 57,000 units of social housing this year, similar to last year's plan.

Conclusion

The Chinese property market is showing signs of gradual recovery, particularly in Tier 2 cities, where sales have increased significantly. However, the overall sector remains under pressure with weak sales and high inventory levels. Policy updates suggest a trend towards market stimulation, with several cities relaxing purchase and mortgage regulations. Despite this, the market valuation is seen as attractive for certain developers, indicating potential investment opportunities.