【Sector Research】China Property Sector – Expert talk

• Expert forecasted contracted sales area to retreat 10-15% in 2020. Last Friday (17 Apr), we invited Mr. David Hong (the General Manager of International Product and business Development and Head of Research at E-House (China) Holdings Ltd) to share his view on China property market outlook, especially after epidemic. He expects full year contracted sales amount and area to retreat by 5-8% and 10-15%, respectively. Furthermore, he believes sales will concentrate in the first and second tier cities. In other words, ASP will stand firm. Downside risk involves pandemic that affects export demand which finally hurts wealth of SME owners.

 

• City-wide transactions peaked in Mar. In terms of unit transaction, David found transactions had peaked in Mar and retreated in Apr. Unit transactions in the first tier cities in Mar reached 67% of that in 4Q19. Second tier and third tier cities were 88% and 66%, respectively. However, unit transaction in the first, second and third tier cities in the latest week in Apr were 67%, 41% and 51% of that in 4Q19. It may be because the promotion in Mar absorbed the purchasing power that reduced the sales in Apr and it is too early to say there is absolute recovery in Apr.

 

• Land market was more robust. NBS reported that real estate investment gained 1.2% YoY in Mar 2020. According to CRIC, land market was more robust than property market. Land transaction in Mar resumed to 40% of that in 4Q19. Major land buyers were SOE, such as Greentown, one month ago. From Mar to now, major land buyers are the leading developers, such as COLI (688 HK), Evergrande (3333 HK), Yango (000671 CH) and Greenland (600606 CH). Furthermore, premium of land base price was as high as that before epidemic. David believed that developers were too optimistic to policy relaxation. Therefore, the best timing of land acquisition has passed. Now, land price is relatively high in Beijing, Shanghai and Hangzhou.

  

• Leading developers’ major battlefield in the third/fourth tier cities. David pointed out the difficulties of obtaining land in the first tier cities. Recently, a few developers formed a syndicate to bid a land in Shanghai that resulted in investigation. The leading developers (with annual sales more than RMB100bn) need to invest aggressively in the third/fourth tier cities for expansion. On 10 Apr, a site in Changzhou was auctioned which attracted more than 10 developers for bidding. Finally, a local developer successfully won the bidding with average land cost of RMB19,793 per sq m, compared with neighbour site of around RMB8,000 per sq m.