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DBS: China Real Estate

Posted on August 1, 2022August 1, 2022 By alanyeo No Comments on DBS: China Real Estate
News Alert: Presales in July held up well despite uncertainties from mortgage boycott
  • Preliminary presales data in July held up better than feared with a similar magnitude of y-o-y decline as June despite uncertainty shed from mortgage boycott 
  • Presales recovery, albeit at a slower than originally expected pace, is expected to continue throughout 2H22 upon 1) impact of mortgage boycott gradually fading out; 2) favorable comparison base in 2H21 and 3) developers to pick up project launches to regain lost grounds in 2Q22
  • Stay with SOEs and quality developers to ride on the potential release of more effective supports to come
  • Sector top picks: Longfor (960 HK), CR Land (1109 HK), COGO (81 HK), COLI (688 HK), and Yuexiu (123 HK)

What’s new?

Preliminary presales data in July largely held up according to CRIC database despite uncertainty sparked from the mortgage boycott.

Our view:

Presales performance in July held up better than feared. Despite escalated fears over delivery risk of presold projects and mortgage boycott since early-July and the seemingly slower pace on projects launches by developers (-37% m-o-m vs Jun for 11 key Tier 1 and 2 cities we track), preliminary presales over the developers we track have largely held up and fared better than market expectations. Presales for 31 developers we track posted a similar magnitude of y-o-y decline (-37.7% vs 36.5% in Jun on weighted average basis) with the YTD decline slightly improved from 45% in 6M22 to 44% in 7M22. Among individual names, CR Land (1109 HK), Greentown (3900 HK) and CMSK (000031 CH) recorded y-o-y growth in July with Yuexiu (123 HK) posted positive y-o-y growth for 4 consecutive months. 

Sequential recovery expected for the rest of the year albeit at a gradual manner. As shown in our high-frequency weekly GFA sales data and from the preliminary presales data from CRIC, the physical market recovery was somewhat disrupted by the mortgage boycott, but at a magnitude that is better than our and market’s original expectations. Looking ahead, we expect physical market recovery will continue – albeit at a slower than originally anticipated before the mortgage boycott incident – upon 1) low comparison base in 2H21; and 2) developers to regain pace for their project launches to partially catch up presales progress that were lost in 2Q22.

Stay with quality names to ride on the potential release of more effective supports to come. While there has recently been news relating to possible setup of a real estate fund to contain the phenomenon and selective local governments seems to be in action to calm affected homeowners (see link: How does the state rescue plan looks like?), we believe concrete progresses and follow-ups will be required to restore investor confidence on the sector. The upcoming result season in Aug might deliver negative news flow due to completion delays and margin compression. High beta names like CIFI will likely exhibit strong price volatility along the way. We recommend investors to stay with quality names to ride on the potential release of effective solutions to come – Longfor (960 HK), COLI (688 HK), CR Land (1109 HK), Yuexiu (123 HK) and COGO (81 HK)

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Research - Equities Tags:China Overseas Grand Oceans Group Ltd, China Overseas Land and Investment, China Property, China Resources Land, COLI, CR Land, Longfor, Yuexiu

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