China property update
Primary sales for the week ending 30 August 2009
Property
Lucia Kwong, CFAAC
(852) 2800-8526
lucia.yk.kwong@jpmorgan.com
Sunny Tam, CFA
(852) 2800-8524
sunny.wy.tam@jpmorgan.com
Raymond Ngai, CFA
(852) 2800-8527
raymond.ch.ngai@jpmorgan.com
J.P. Morgan Securities (Asia Pacific) Limited
See page 6 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may
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investment decision.
China developer’s share price index
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2005 2006 2007 2008 2009
Source: Bloomberg, J.P. Morgan.
• Sales volume slipped another 2% w/w: Primary sales in the eight cities
we track slid 2% w/w after a 3% w/w decline. During the week, a total
of 3,150 units were sold daily. With the exception of Chengdu (+18%),
Guangzhou (+31%) and Hangzhou (+16%), sales volume dropped 1-
12% in other cities. Shenzhen sales even dropped 46% w/w to 98 units
per day, the lowest since February.
• CR Land acquired 2 sites for Rmb 3.5 billion: Last week, CRL outbid
Gemdale, Poly, Longhu etc and acquired 2 sites in Jiading, Shanghai for
a total of Rmb3,522 million, representing an AV of Rmb7,358/sqm. One
site has a plot ratio of 1.0-1.5x and the other has a plot ratio of 1.8-2.2x.
The two sites include 5% price-cap housing developments. The last land
auction in the district was in late 2007 when land cost was at low
Rmb3,000/sqm levels. Based on an assumption of current ASP of
Rmb14,000/sqm for apartments and Rmb20,000/sqm for low-density
housing units, which are at a premium to nearby developments
(Rmb8,000-12,000/sqm for apartments), we estimate the NAV accretion
at Rmb0.15/sh or 0.7% of gross asset value. While the acquisition is still
NAV accretive, the district has abundant supply of land and so the
projects may be subject to future competition when more sites are sold.
• Second home mortgage policy as the "thermostat" of the China
property market: Since local media (Sina, Soufun) reported that banks
in Beijing have strictly applied the 1.1x PBoC rate on second home
mortgages in mid-August, both primary sales and secondary transactions
in major cities have softened. Although the implementation of second
home mortgage policy still varies from city to city, the government is
apparently making use of this as a means to prevent the property market
from getting overheated as it did in FY07, until new supply can come on
stream by 1Q10. We expect that “fine-tuning” process to continue with
an aim to keep the warmth of the property market without resulting in a
surge in housing prices. On the other hand, we believe investors would
be wary if the lending quota is restricted to Rmb300 billion levels per
month, which signal credit tightening. But so far, we believe the
government has no intention to curb end-user housing demand. Against
this policy backdrop, we expect near-term weakness in the sector and
short-term relative outperformance of big-caps (COLI, CRL) over the
peers due to their defensive nature. Nevertheless, we see better valuation
support and upside potential for the mid-caps at/below 10x FY10E PE on
average. Mid-caps are trading at an average FY10E P/E of 10.8x after
having corrected 25-35% from their peaks.