News Alert: Preliminary presales data in May came in slightly better than expected
- Preliminary presales data in May came in slightly better than expected upon a slight positive m-o-m growth despite tightened COVID-19 lockdown measures and weakened economic outlook in China
- SOE continued to deliver better presales performance vs POEs, with Yuexiu being the only developer we track that secured a positive y-o-y presales growth in the month
- More presales recovery could be felt in June as impact from policy support on homebuyer sentiments should start to kick in and COVID-19 lockdown measures to become more finely controlled
- Ride on quality names with flexibility to increase saleable resources at times of physical market recovery – COGO (81 HK), COLI (688 HK), Longfor (960 HK), CR Land (1109 HK), and Yuexiu (123 HK).
What’s new?
Preliminary presales data in May according to the CRIC database came in slightly better than expected.
Our view:
Slightly better than expected presales data in May. Alongside tightened COVID-19 lockdown measure during the month and weakening economic outlook in China, ourselves as well as the market had low expectations on the presales performance in May both for the national market and to individual developers. As such, the fact that presales for 31 developers we track was able to record a positive m-o-m growth both on a weighted (+6.1%) and simple (+2.8%) average came in as a mild surprise to us. Among individual names, Yuexiu (123 HK) was the only name among those we track that secured a positive y-o-y growth during the month.
More presales recovery could be seen in June. On one hand, COVID-19 lockdown measures in China are now more finely controlled (partial and shorter lockdowns and in district levels as seen in the case of Beijing and Tianjin, as compared to lengthy full lockdown in Shanghai) as both the central and local governments are wary of the economic disruption such measures will have on the economy. On the other hand, more effective policy supports have been introduced since May both in the physical market (cut in 5-year LPR and first-time mortgage rate benchmark, etc) and on developers’ refinancing (encouragement of issuing onshore bonds with credit risk mitigation warrants, etc), and more will likely be on the way. We believe these will help to cushion and stabilize homebuyer sentiments, and while presales in June will likely remain in deep decline on a y-o-y given a high base last year, more presales recovery on a m-o-m could potentially be seen in the upcoming month.
Ride on quality names with flexibility to increase saleable resources when physical market recovers. We recommend investors to stay with quality names that has decent flexibility to swiftly accelerate their saleable resources launch when the point of physical market recovery hits. Our sector top picks in this regard are COGO (81 HK), COLI (688 HK), Longfor (960 HK), CR Land (1109 HK), and Yuexiu (123 HK).
