Regulators need to step in to rescue sector
- CRIC indicated that property sales for 25 key developers fell 38% yoy in June 2023, in contrast to a 10-20% increase before liquidity issues started.
- We think further sales declines will lead to more liquidity issues for the sector and hurt China’s economic recovery.
- State-owned CR Land, COLI and private Longfor outperformed their peers with sales growth of 15%-41% in 1H23, according to CRIC data.
- We advise investors to stick to state-owned players, such as CR Land & COLI, or private player Longfor. In high-beta names, we like Country Garden.
Private developers’ June sales fell 50-55% yoy
According to China Real Estate Information Corporation (CRIC), one of the largest real estate brokers in China, estimates contracted sales of the 25 Chinese developers, including 10 companies we cover, fell 38% yoy and were flattish mom in Jun 2023F. The numbers look better than Wind’s (a key data provider in China) which estimates 30 cities’ sales fell 42%/18% yoy/mom in Jun, as the data were distorted by state-owned developers’ numbers, which significantly outperformed private developers whose sales collectively fell 50%-55% yoy and 15-20% mom in Jun. Overall, we think the Jun sales are disappointing as, Jun sales saw 10-20% yoy growth before liquidity issues started.
State-owned fared much better than private developers
State-owned developers’ (CR Land, COLI, Yuexiu, Poly, etc.) June sales fell 20-30% yoy, faring better than private developers. On a mom basis, state-owned players’ sales rose due to increasing sellable resources in June vs. May. For 1H23, state-owned and strong private developers (Longfor, Greentown, Vanke) markedly outperformed with 1H23 sales growth of flat to +69% yoy while private players with liquidity issues saw their sales falling 30-70%.
Sales deterioration could lead to more policy support in near term
We believe that the deterioration of sales since April 2023 could lead to more policy support for the property market in near term as it is one of the biggest sectors for China economy and job creation. Lower-than-expected sales have caused liquidity issues even for quasi-stateowned players such as CCRE (832 HK, not rated, CP: HK$0.15) – the largest developer in Henan province, who requested further extension to its offshore debt repayment last week. Please refer to our report (Near-term policy support likely, 27 June), where we summarise the key measures we think policymakers should implement to boost property sales and ease developers’ liquidity issues. Overall, we think it is critical for the regulators to implement new measures to rescue the sector.
Top picks: CR Land, COLI and Longfor
We reiterate sector Overweight on potential policy loosening in the near term. Among state-owned players, we like CR Land and COLI. Meanwhile, we like Longfor and Country Garden among private players. Key sector risks include further declines in