News Alert: More policy support to revive the physical market
- Presales of 31 developers we track showed less than anticipated magnitude of improvement in Sep-22 as per CRIC database, which we believe prompted government to accelerate policy support
- Income tax refund a supportive move but effectiveness of which remains to be seen
- Urges on liquidity injections will likely land on SOEs rather than to those in need of refinancing in the absence of window guidance
- Share price to react positively in anticipation for more policies to come, though sustainability of which requires RMB to stabilise, physical market to evidently recover and refinancing channels to reopen
- Top pick: COLI (688 HK), CR Land (1109 HK), Yuexiu (123 HK), we also like KE Holdings (BEKE US/2423 HK)
What’s new:
More policy support were introduced on Friday shortly after the joint notice from the PBOC and CBIRC (link for full comment). At the same time, preliminary presales data for leading developers showed less than anticipated magnitude of improvement in Sep-22.
Policy support include:
1. The Ministry of Finance announced a notice that from 1 Oct 2022 to 31 Dec 2023, residents in most cities who purchase new property within 1 year of selling existing ones will get income tax refunds.
Requirement:
a. The property sold and repurchased by the taxpayer should be within the same city
b. The property sold and repurchased should be the same property owner
c. If the consideration of the newly purchased property is larger than or equal to that of the existing one, full amount of individual income tax will be refunded; if the consideration of the new purchased property is less than that of existing one, the individual income tax will be refunded according to the portion of the amount of the newly purchased house to the amount of the current house.
2. Bloomberg reported that PBOC and CBIRC urged the six largest SOE banks to extend an additional >Rmb600bn of net financing to the property sector in the remainder months of 2022. Each of the bank was told to offer >Rmb100bn of financing support in any form including mortgages, loans to developers and purchase of their bonds.
News link (tax refund)
News link (property funding)
Our view:
Accelerated policy support in response to weak Sep presales figures. Per preliminary data from CRIC, presales of 31 developers we track in Sep picked up slightly by 4.3% m-o-m from Aug’s level or fell 23.1% y-o-y on simple average basis. Divergence among developers intensified with SOEs recorded further outperformance (SOE/POE: 23.7%/-56.9% in Sep vs SOE/POE: -6.0%/-54.3% in Aug). Among individual names, Poly HK (119 HK), COLI (688 HK), CR Land (1109 HK), Yuexiu (123 HK), Poly Dev (600048 CH) and CMSK (001979 CH) recorded positive y-o-y growth within the month. While the Sep figure should be largely within market expectations given the forewarning from weekly data, it should have fallen short of regulators’ original anticipations. We believe this could be a reason that have prompted regulators to introduce more policy measures to stabilize the physical market.
Tax refunds a move to stimulate market transactions, but effectiveness remains to be seen. The individual income tax involved for most cities in the disposal of residential properties that are held less than five years (exempted for ones held for over five years) would be either the choice of 1) 1% of the total consideration of the property in question; or 2) 20% of the profit that the seller secures in the transaction. We believe the main purpose of this policy is promote improvement demands and to revive property market activity. Having said that, the effectiveness of this measure remains to be seen, as the actual incentive offered in this refund would be c.1% of the transaction value of the sold home. With the lingering concerns over delivery risks and subdued market sentiment, we think the move is good-to-have, but may not be sufficient to meaningfully revive homebuyer sentiments. KE Holdings (2423 HK/BEKE US) could potentially benefit from the potential pickup of property transaction volume particularly in the secondary market..
Urges of liquidity injection to benefit SOEs. If Bloomberg’s report holds true, the >Rmb600bn net financing (as compared to Rmb668.5bn of net financing in 1H22) can offer meaningful support to the property space. However, in the absence of further direction and guidance from regulators, these liquidity will unlikely be injected to those in need of refinancing and will most likely be directed mainly to SOE names and developers that are deemed safe on a repayment standpoint. Aside from the well-known SOE names, Longfor (960 HK) who is an investment graded POE name but was beaten up by market sentiment would serve as a key beneficiary to this news.
Stay with quality names amid volatile market. We expect the sector share price to react positively to the series of latest policy developments and record a rebound in the near term. Presales may also see a decent pickup at the start of October. However, investor sentiment remains fragile, and we are only likely to see a sustainable recovery in share prices when the RMB stabilises, physical market recovers, and refinancing channels reopen. Volatility will likely to remain in the near term, and we recommend investors to stay with quality names that are less impacted by RMB depreciation and able to benefit from the potential release of more policy supports – COLI (688 HK), CR Land (1109 HK) and Yuexiu (123 HK). We also like KE Holdings (BEKE US/2423 HK) which would benefit from the ongoing demand shift to the secondary market.
