To see strong sales recovery from June onwards
? CRIC says that developers’ May 22 sales likely fell by 58% yoy due to
lockdown measures in China but rose 11% mom on a low base from April.
? We expect developers’ sales to recover from June onwards on improved
market sentiment and much lower mortgage rates and downpayments.
? Meanwhile, the central government is clearly supporting the property market,
which should bode well for developers’ share prices ahead.
? We reiterate our Overweight call on strong policies and attractive valuations.
Top Adds include Longfor, CG, CIFI, KWG and Times.
May 22 sales likely fell 58% yoy on weak sentiment and lockdowns
According to real estate agency China Real Estate Information Corporation (CRIC), one of
the largest real estate brokers in China, contracted sales of the 17 Chinese developers we
cover likely fell by 58% yoy in May 22, dragged by weak market sentiment and strict
measures imposed by cities due to the outbreak of Covid-19 in China. May 22 sales
however rebounded 11% mom from Apr, thanks to the gradual containment of Covid-19
and the low base in Apr. Sales for problem developers, such as Sunac, Aoyuan, Shimao
and Yuzhou, were particularly weak, likely falling 79-89% yoy in May 22, while state-owned
developers (SOEs) COLI and CR Land fared relatively better, albeit still expected to see a
20% yoy decline. Overall, we think the weak numbers should be expected by the market.
Developers’ FY22 sales could drop 30-40% yoy
Dragged by weaker-than-expected contracted sales for 5M22, developers on average
achieved a run rate of 23%, well below the average level of about 30-40%. Despite a sales
recovery from June onwards, we believe developers’ FY22 sales could plummet 30-40%
yoy, which is worse than our expectation of a decline of some 20% yoy.
Contracted sales to see strong rebound from Jun onwards
We believe that developers’ contracted sales will see a strong recovery from June onwards
on 1) Improving market sentiment on the back of a series of supportive measures
announced in the past few weeks, 2) Much lower mortgage rates by about 1% compared
to a month ago and reduced downpayments for first-time home buyers and upgrade
demand by 10-20% pts compared with a month ago, and 3) a lower sales base in 2H21,
which only accounted for about 40% of full-year sales vs. c.55% normally.
Reiterate Overweight; top Adds: Longfor, CG, CIFI, KWG and Times
Overall, we stay sector Overweight on very strong supportive policies ahead, which could
lead to sales recovery and attractive valuations for the sector. We like Longfor, CIFI and
Country Garden (CG) among mid- and large-cap plays. For small caps, we like Times and
KWG. Among SOEs, we like CR Land. Key downside risks are unexpected further
outbreaks of Covid-19, which could lead to weaker-than-expected sales recovery in 2H22
and more developers unexpectedly unable to repay debts. A re-rating catalyst is a fasterthan-expected sales recovery ahead.