【Sector Research】China Property Sector – The worst of epidemic is over
- Rebounded sharply MoM but dropped YoY in Mar 2020. NBS released property market data. Contracted sales amount and area shrank by 24.7% to RMB2,037bn and 26.3% to 220mn sq m in 1Q20 because of the cities lockdown arisen from COVID-19. Although we saw market had recovered in Mar after business activities started to resume, property sales experienced a YoY decline of 14% in Mar 2020. After the outbreak was under control in most part of China in Mar, many developers claimed that their businesses resumed to normal in Apr 2020. Our rated developers as well as Evergrande and Sunac on average set 2020 sales target as 12%.
- Shenzhen property market rebounded strongly. Following to the launching of more personal or SME loan, Shenzhen property market became robust in Apr. Pre-sales of projects in Nanshan or Baoan was resilient with sold-out in short period of time. However, we read the news that Shenzhen banking authority started to investigate the usage of proceeds yesterday. We are afraid that China government will adopt more conservative policies for the rest of year to avoid property market overheat.
- Change of our view for property policies relaxation. Now COVID-19 is under control in China. We believe China government will focus more on economic recovery now. However, current property market is running ahead of the economic situation. On the other hand, China government accepts China economic growth below 4% in 2020. So it does not rely on China property market to support economic growth. Furthermore, China Politburo meeting restated that “house is for living, not for speculation” on its 17 Apr meeting. Therefore, we do not expect there will be massive further stimulus policies to support house purchasing, such as lift of Restriction on Purchase or substantial down payment reduction for second home.
- But support property companies sustainability. Although we are prudent to policies targeting property buyers, we believe China government will ensure property companies to run smoothly in order to avoid massive bankrupt or huge unemployment. For example, China government will supply more land for developers. Secondly, we believe financing channels for healthy developers will be enhanced.
- Maintain sector to have 5% decline in sales. Same as our previous report dated 17 Feb 2020, we forecast property sales and area to decline by 5% and 10% in 2020, respectively. After about 11% decline in share price for rated developers since 17 Feb 2020, we are more confident in them. Our top picks include Vanke (2202 HK, BUY, TP: HK$36.69), Country Garden (2007 HK, BUY, TP: HK$14.55), China Aoyuan (3883 HK, BUY, TP: HK$15.48) and Poly Development (600048 CH, BUY, TP: RMB22.16).
