20140501-美银美林-Slow_sale___price_cuts_provide_room_for_policy_easing_14页_761kb

Summary of Document: Slow Sale & Price Cuts Provide Room for Policy Easing

Core Content

This document provides an analysis of the current state of China's real estate market, focusing on the recent policy changes and their implications. It outlines the trends in property sales, inventory levels, and the varying degrees of policy easing across different cities and districts. The report also highlights the potential for further policy adjustments and the impact on developers.

Main Points

• Policy Diversification: The new administration has emphasized policy differentiation, leading to varied local property regulations across cities. Some cities have eased purchase restrictions (HPR), while others have tightened Hukou policies.

• Recent Policy Easing:

  • Nanning: Eased HPR to allow residents from nearby cities to purchase homes, aiming to attract more investors.
  • Tianjin's Binhai District: Planned to relax HPR and reduce the down payment for joint-owned properties. This is in response to high inventory levels.
  • Wuxi: Relaxed Hukou policies to allow families purchasing residential flats above 60 sqm to apply for Hukou.

• Sales and Inventory Trends:

  • Sales in key cities have declined year-to-date and month-to-month.
  • Inventory levels are high in several cities, particularly in Tier-2 and Tier-3 cities, indicating a need for policy support to stimulate demand.

• Central Government's Stance:

  • The central government aims to support end-user demand while suppressing investment and speculation.
  • It is unlikely that HPR will be canceled in the short term, and only a limited number of cities have HPR in place.

• Potential Policy Adjustments:

  • More Tier-2/3 cities may ease HPR or second home mortgages to boost sales.
  • Easing second home mortgages could have a greater impact on stimulating demand, as it may encourage more upgrade demand.

• Developer Impact:

  • Developers with significant exposure to Tier-2 cities may benefit more from policy easing.
  • The report highlights several developers, including COLI, Shimao, Longfor, and KWG, as top picks due to their financial strength and growth potential.

Key Information

• Policy Divergence: Cities like Nanning and Tianjin's Binhai District have taken steps to ease purchase restrictions, while Beijing and Tianjin have tightened Hukou policies.

• Inventory Levels:

  • Nanning's inventory time is around 13.5 months.
  • Tianjin's Binhai District has an inventory time of 42.6 months, significantly higher than other areas in Tianjin.

• Market Performance:

  • The property market has seen a decline in sales and price growth in some Tier-2/3 cities.
  • The central government's policy focus is on balancing demand and speculation.

• Developer Valuation:

  • China developers are currently trading at undemanding valuations, with an average P/E of 5.5x and P/B of 0.7x.
  • The report suggests that the current market conditions could lead to improved sales in May and June, which would benefit the sector.

• Policy Impact:

  • The easing of HPR and second home mortgages is expected to have a more significant effect on stimulating demand.
  • Developers with exposure to Tier-2 cities are likely to benefit more from these changes.

Policy Easing Summary

Date	City/District	Policy Easing Details
24-Apr	Wuxi	Families purchasing flats above 60 sqm can apply for Hukou
28-Apr	Nanning	Non-local Hukou holders can purchase homes in Nanning
29-Apr	Tianjin's Binhai	Relax HPR and reduce down payment for joint-owned properties

Inventory Time Summary

City	Inventory Time (Months)
Nanchang	5
Beijing	10
Hangzhou	18
Nanning	13.5
Tianjin	22
Wuxi	22

Developer Analysis

• COLI: Strong financial position and potential for asset injection.
• Shimao: Balanced growth profile with healthy balance sheets and margins.
• KWG: Good growth and financial management.
• Longfor: Consistent financial management and improving pipeline.

Market Outlook

• Sales Expectations: Improved sales in May and June due to policy easing and price cuts.
• Valuation: Developers are undervalued, presenting potential investment opportunities.
• Policy Impact: Easing HPR and second home mortgages could stimulate demand, particularly in Tier-2/3 cities.

Important Disclosures

• The report is issued by BofA Merrill Lynch and may involve conflicts of interest.
• Investors should consider this report as a single factor in their investment decisions.
• The report is subject to certain disclosures and analyst certifications.