Table of Contents

Three policy focuses ahead .............................................................. 3
Home prices control targets milder than expected...................................................................3
Three key policy directions for the property market..................................................................5
More price cuts taking place – a positive signal............................. 9
More price cuts should reduce the risks of more aggressive tightening ..................................9
Picking winner in a price-cut scenario .....................................................................................11
Looking back at 2008 ..............................................................................................................11
A two-system housing market is emerging .................................. 13
The co-existence of commodity housing and public housing in the China housing market....13
10mn new constructions of public housing units in 2011.......................................................14
Public housing plan by province..............................................................................................16
Public housing plan by city......................................................................................................19
A huge amount of capital is required ............................................ 24
A huge amount of social capital is needed for the development of public housing in China ..24
Potential funding shortfall is a key challenge to local governments........................................25
Local governments also have tight deadline on fulfilling their public housing target ..............27
The deadline for 2011 is October 31.......................................................................................27
Impact 1: Tighter financing for commodity housing.................... 28
Development of public housing would lead to a tighter financing environment for developers
of commodity housing ............................................................................................................28
Tighter credit environment has led to more fundraisings in the offshore bond markets by the
commodity housing developers..............................................................................................29
Market consolidations to accelerate .......................................................................................30
We should also look at the speed of market share growth ....................................................31
The big names might or might not get bigger – the key is financing capabilities in a tighter
financing environment.............................................................................................................32
Impact 2: Cost inflation for commodity housing .......................... 33
Development of public housing would lead to rising development cost for commodity
housing ..................................................................................................................................33
New construction start for public housing a big proportion of the current commodity housing
market....................................................................................................................................33
Hypothetical analysis: margin impact to different housing segments on higher development
cost ........................................................................................................................................34
Profitability analysis for different Chinese developers ............................................................35
Source of organic growth: counter-cyclical expansions .............. 37
When financing for developers is getting tight = time to expand for the leaders...................37
COLI and Vanke would become even stronger market leaders in 2013 .................................38
Virtuous cycle for financially strong and disciplined developers; vicious cycle for financially
weak and undisciplined developers ........................................................................................38
New focus for commodity housing: Tier-3/4 cities ...................... 41
We see strong volume growth for Tier-3/4 cities....................................................................41
Tier-3 and Tier-4 cities should be less affected by government tightening.............................42
COGO, Evergrande, Central China Real Estate are pioneers in Tier-3/4 cities.........................44
Government policy summary ......................................................... 46
Property sector policies ..........................................................................................................46
Local residential market.................................................................. 54
Most cities showed good growth in next construction starts in 2010....................................54