【行業研究】中國房地產 – 對疫情過份樂觀

• Sales almost stopped after CNY. COVID-19 has totally interrupted property sales in China recently. Chinese government banned property sales centers in 50 cities to avoid disease spread. Furthermore, secondary market was also affected, especially due to the closure of community. In the past eight years, property sales in 1Q on average accounted for 16% of total. Any sales delay in 1Q would not have huge impact to full year property sales. So we trim our contracted sales amount growth forecast in 2020 from 5% to -5% for our base case.

 

• Sales in Hubei were hit so much. Hubei is most seriously affected by COVID-19. People are quarantined in Hubei. Most of activities there are also stopped now. Luckily, companies under our coverage are national players. Land bank in Hubei generally accounted for less than 5%. However, Zhejiang and Guangdong are another two provinces after Hubei that are seriously affected by COVID-19. Since GBA and Eastern China are two major regions where majority developers invest in, if infection accelerates in these two regions, we are afraid it will hit property market and developers much.

 

• Relaxation policies will be launched. We believe Chinese government focuses on fighting COVID-19 now. We see some local governments have launched some relaxation policies for property market, such as deferring land premium and tax payments. However, full scale of support is not in place until epidemic is well control. Although housing policy relaxation can boost economic growth, Chinese government now focuses on stability.

 

• Earnings impact is limited for base case. Due to the slowdown of property sales, developers will pay attention to its cash flow management in order to avoid credit risk. They will decelerate construction pace and reduce land replenishment, even cutting dividend. Secondly, they can seek channel for further financing. On the base case, we believe impact on 2020 earnings is limited. Most of the property companies’ revenue are locked-up by pre-sales. Some companies may lose some rental income due to rent recession plans during epidemic period.

 

• “Only when the tide goes out do you discover who’s been swimming naked”. We believe investors are under-estimating the impact of COVID-19. There are many uncertainties for COVID-19. Share prices of many property companies only corrected less than 10% for their 52-week peak. We believe that correction is not enough. Until there is another 10-15% retreat, we advise investors stand at the side-line.