Apr sales further dragged by Covid
? CRIC states that Chinese developers’ Apr 22 sales likely fell by 60% yoy, the
worst ever for the sector, due to Covid-19 spreading in China.
? We assess that weak sales and activity levels in the property market could
prompt regulators to take more aggressive loosening measures.
? The Covid-19 cases in China recently appear contained. City lockdowns
could be removed after May 22. This suggests that sales could recover then.
? We reiterate our sector Overweight call on strong supportive policies and
attractive valuation. Top Adds included Longfor, CG, CIFI, KWG and Times.
Apr 22 sales likely fell 60% yoy according to CRIC
According to real estate agency China Real Estate Information Corporation (CRIC),
contracted sales of the 17 Chinese developers we cover likely fell by 60% yoy in Apr 22 –
the worst performance for China property history, dragged by strict measures imposed by
cities due to the unexpected spread of Covid in China. Sales for Agile, Aoyuan, RF and
Yuzhou were particularly weak, likely falling 81-94% yoy in Apr 22 while COLI, Vanke and
Longfor fared relatively better, though still expected to register a 25-48% yoy decline.
Developers’ sales could see a strong rebound from May 22 onwards
Developers’ contracted sales have been significantly affected by “Zero-Covid” policy
adopted by the Chinese government as developers’ sales rooms are forced to shut down.
Though developers tried to promote sales via online channels, the impact is not meaningful.
Since mid-Mar 22, we have seen an increasing number of areas and cities including Yangtze
River Delta (e.g. Shanghai), Jilin and Xi’an lockdown. Sales for developers such as CIFI and
Shimao with higher exposure in the areas also faced high pressure with sales falling 62%
and 76%, respectively in Apr 22. As the number of Covid-19 cases in Shanghai, Jilin and
some other cities have trended lower from mid-Apr 22, we expect the government to relax
lockdown measures from May onwards. In our view, this suggests that sales should recover.
Weak property market leads to more policy relaxations
Given the importance of China property, we assess that the central government has to relax
more measures, as long as it does not violate the “housing for living and not for speculation”
directive. We estimate property accounts for about a third of China GDP and is a key job
contributor. The Politburo meeting led by President Xi last Friday (29 Apr 2022) emphasised
maintaining a stable property market. We expect more policies which were previously
announced to be implemented soon, especially loosening of escrow account funds.
Reiterate Overweight; Top Adds: Longfor, CG, CIFI, KWG and Times
We stay sector Overweight on strong supportive policies ahead, which could lead to sales
recovery and sector’s attractive valuation. Overall, we prefer non state-owned enterprise
(SOE) developers over SOEs. We like Longfor, CIFI and Country Garden (CG) among midand large-cap plays. For small caps, we like Times and KWG. Among SOEs, we like CR
Land. Key downside risks are continuous outbreak of Covid and weaker-than-expected
sales recovery. A re-rating catalyst is faster-than-expected sales recovery ahead.