News Alert: Stepping up a notch on supportive measures to the physical market
- Zhengzhou announced to introduce 19 policies to support the physical market, marking it the first key Tier 2 city to introduce a comprehensive set of policy loosening
- The introduction of more supportive policies itself was largely expected by us and the market, but the magnitude of this loosening came in more material than anticipated
- More cities may follow suit and intensify their supports on their local physical markets if Zhengzhou’s loosening is not later withdrawn by the local government
What news?
Zhengzhou announced on 1st March to introduce 19 policies in supporting the development of physical market. These policies mainly include the following: 1) loosening of existing ASP restrictions; 2) lowering requirements for home-purchase eligibility; 3) cuts in mortgage rates; 4) offering home purchasing subsidy for graduates and immigrant workers and 5) lowering of land auctions deposit ratio to 20% and allows for land premium payments in instalments, amongst others.
Our view:
A far more significant and meaningful move to support the physical market. The introduction of the policies itself was largely in line with market expectation that more easing would come around the upcoming “Two Sessions”, but the magnitude of which turns out to be far more comprehensive and material than anticipated. Different from recent loosening in other cities that are generally mild and have mainly focused only on the provision of home purchase subsidy, house provident fund mortgage and trimming down payment ratio, Zhengzhou being the first key Tier 2 city with a much more comprehensive set of policy loosening will likely create more of an impact to shore up buyer sentiments.
More cities may follow to cushion the rapidly moderating physical market. Despite a turn in policy direction since Dec-21 to a supportive tone on the physical market, buyer sentiments continued to be weak alongside the ongoing property sector turbulence. Top 100 developers’ presales in Jan/Feb fell sharply by 39.6/47.2% y-o-y as per CRIC data. Zhengzhou has been underperforming other tier-2 cities in terms of ASP growth since 2017 upon an ongoing supply glut in the city, and thus it makes sense for us to see Zhengzhou taking the lead on policy loosening. More cities may follow suit and roll out more impactful and material policies to support their local physical markets in the event that Zhengzhou’s policy support remains in place and is not recalled by the local government in the end.
Fig. 1 Zhengzhou ASP vs other tier 2 cities
A hint of light in the dark tunnel. We believe Zhengzhou’s policy could potentially mark a meaningful step-up of regulator’s willingness to cushion downside risks on the physical market if the policy is not withdrawn by the local government, as this will open a gate for other local governments to introduce more meaningful and impactful support to the property market. This will also mark a decent start of the upcoming “Two Session”, where more supportive policies and agendas may be announced during the meeting. We expect some share price recovery in the anticipation of more policy easing to come in the near term. With that said, we recommend investors to ride on this potential wave of policy support with quality names as we are still in the middle of the repayment peak and the dusts in the sector are yet to be fully settled. Our top picks are COLI (688 HK), COGO (81 HK), CR Land (1109 HK) and Longfor (960 HK) for their sufficient saleable resources and solid balance sheet.