China Property
Monthly market intelligence
for June 09
Danny Bao, CFA
Research Analyst
(+86) 21 3896 2839
danny.bao@db.com
Ling Xu
Research Analyst
(+86) 21 3896 2834
ling.xu@db.com
Robust sales in June; new construction starts reverse their downtrend
Residential GFA sales increased 35.3% MoM, while ASP decreased 4.5% MoM in
June. The short-term supply shortage in major cities was driven by strong sales,
which exerted upward pressure on local home prices. Meanwhile, new
construction activity improved in June, as developers became more positive on
demand. We expect sales growth to decelerate in the summer and 2H due to a
tighter second mortgage policy, and expect inventory to increase on a policy shift
towards boosting supplies and curbing speculative housing demand.
Deutsche Bank AG/Hong Kong
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LOCATED IN APPENDIX 1. MICA(P) 106/05/2009
Market Update
Table of contents
Selling prices .................................................... Page 02
Transaction volume .......................................... Page 05
New supplies.................................................... Page 12
Local residential markets.................................. Page 15
Land supply & demand .................................... Page 24
Policy orientation .............................................. Page 25
Monthly performance....................................... Page 28
Valuation performance ..................................... Page 29
Top picks
China Resources Land (1109.HK),HKD15.90 Sell
Agile Property (3383.HK),HKD9.89 Sell
Shanghai Forte Land (2337.HK),HKD2.58 Sell
China & HK NAV discount spread
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China HongKong
Index performance 30/6/2009
Index 1m % 3m % 12m %
HSI 1.1 35.4 -16.8
HSCEI 5.1 35.8 -8.0
HSP -1.9 41.7 -4.5
Coverage 23/7/2009
Company Last price TP Upside
COLI (0688.HK, Hold) 17.84 13.70 -23.21
Vanke-B (200002.SZ, Hold) 11.95 9.60 -19.67
CR Land (1109.HK, Sell) 16.80 10.60 -36.90
CG (2007.HK, Hold) 3.63 2.00 -44.90
R&F (2777.HK, Hold) 17.06 9.00 -47.25
Agile (3383.HK, Sell) 10.30 4.05 -60.68
SOL (0272.HK, Hold) 5.40 3.30 -38.89
Greentown (3900.HK, Hold) 11.80 4.45 -62.29
Forte (2337.HK, Sell) 2.74 1.80 -34.31
Global Markets Research Company
January-June 2009 residential GFA sales rose 33.4% YoY
Total residential GFA sales in China for 1H09 were 315msqm, about 22.2% higher
than 1H07. Large metropolitan cities saw much higher growth rates. Among the
14 major cities, only Shenzhen, Tianjin and Suzhou showed MoM volume declines
in June. Wuhan saw the highest monthly volume increase at 87.8%, while Tianjin
suffered the maximum monthly decline of over 30%. June transaction ASP
contracted MoM in select cities such as Beijing, Guangzhou, Chongqing and
Nanjing. Secondary transactions in major cities have also picked up in recent
months due to limited primary inventory. Recent weekly data from July suggest
that sales volume may decline from the June level. We expect sales volumes to
decline in the summer.
New construction starts YoY growth turned positive in June
New project starts for residential housing increased 8% YoY to 98.1msqm in June,
following 11 months of consecutive YoY declines. New construction starts for
commodity housing also increased 12.08% YoY to 122.7msqm. According to data
from the National Bureau of Statistics of China, FAI in the property sector reached
bottom in February 2009 to gradually recover in the following months. This data
suggests that developers’ sentiment on the physical market improved in June, and
they are more willing to launch more projects and resume construction activity.
Government policies to curb speculative demand and accelerate supply
Since mid-June, banks in Beijing have started to tighten second home mortgages,
which included 40% down payment and 10% premium to the prime. Other cities,
such as Hangzhou, Shenzhen, Nanjing, Shanghai and Chengdu, followed suit. On
17 July, CBRC Chairman Liu Mingkang mentioned at a conference in Beijing that
local financial institutions should follow secondary mortgages stringently to avoid
credit risk. The tightening of the mortgage policy will likely discourage investment
demand. Furthermore, the government issued a notice urging the developers to
start presales immediately after obtaining the permit.
Sector may be vulnerable to short-term pullback
The weaker sales volume outlook for 2H09 will impact the valuation of China’s
property sector. We estimate that developers have raised about US$3.5bn in
financing over the past seven months. We expect more developers to tap the
capital market for fund-raising. In addition, we expect overall 1H09 results will
likely be below consensus due to industry-wide capacity constraints. The current
valuation might be vulnerable to a pullback in the sector. We expect the sector to
underperform the benchmark over the next three months and recommend
investors to Underweight it.