News Alert: China Property Sector: Concluded 1H23 with a soft note
- Presales of 30 developers we track rose 2% m-o-m or -36% y-o-y in Jun, slightly below expectations and concluded 1H23 with a soft note at -6% (vs. +4% in 5M23)
- Unchanged policy tone in the recent 2Q23 monetary policy committee hints regulators’ likely continuance of a gradual and city-selective approach on property-related policies
- Property sales in July may remain under pressure given a likely decline in project launches and continually weak homebuyer sentiment
- A decent entry point for quality names: and Longfor (960 HK), CR Land (1109 HK), COLI (688 HK)
What’s new?
Preliminary presales data from the CRIC revealed further softened physical market sentiment in Jun, concluding 1H23 with a weak note.
Our view:
1H23 ended on a soft note. According to CRIC data, presales of the 30 developers we track rebounded slightly by 2% m-o-m from May-23 level upon an increase in project launches by developers to boost sales before the interim year end (projects launched in 30 key cities tracked by CRIC rebounded 34% m-o-m). Homebuyer sentiment extended its weakness with sell-through rate slid on 1) unresolved concerns over macroeconomy and income uncertainties; and 2) continually weak home price expectations. This, together with a higher comparison base in Jun-22, brought the 1H23 presales performance back to the negative territory at -6% decline (vs. +4% in 5M23).
SOE maintaining presales outperformance. SOE developers continued to outperform its POE peers in June, recording a narrower 27% y-o-y decline (vs. POE’s 45% decline) or +25% y-o-y increase in 1H23 (vs. POE’s -28%), supporting SOE’s market consolidation story and brought their market share among the top 100 developers to c.56% (vs. 50% in 2022).
Policy easing ahead to remain gradual and city-selective. Latest policy tone from the PBOC after the 2Q23 monetary policy committee meeting on the property sector was largely unchanged from that in 1Q23 aside from the removal of “control and prevent risk from leading Chinese developers” and the inclusion of “ensure a stable and healthy development of the property market” (see link for full statement), reinforcing our view that regulators intend to only maintain a stable property sector that will not cause a drag on China’s economic growth. We maintain our expectations that regulators will likely only maintain the current accommodative property policy environment, and while there could be further easing to land, these will likely be introduced in a gradual and city-selective manner, with directions to likely focus on the promotion of improvement/replacement demand via the removal of existing purchase and resale restrictions in selective cities.
Some moderations to come in July. On one hand, we believe genuine demand homebuyers will likely continue to remain on the sideline given unresolved macroeconomic uncertainty and the likely extension of weak home price expectations. On another, project launches should have peaked in June due to seasonality. These may weigh on sales performances in July and lead to m-o-m moderation from June’s level. Having said that, with replacement and improvement demand likely to remain front-and-center in the physical market, polarization across regions and cities will likely continue with higher-tiered cities likely to see more resilience in their sales performance.
Watch for entry point for quality names. The sector share price remains close to the level seen in Oct 22 before the COVID restrictions were lifted and should more than reflect the current headwinds in the property sector. Near-term share price performance will likely remain volatile given the currently fragile investor sentiment, which would create decent entry points for quality names with sufficient quality saleable resources that can outperform amid this continually polarised market trend – Longfor (960 HK), CR Land (1109 HK), COLI (688 HK), and Yuexiu (123 HK).
Source: CRIC, DBS HK
Source: CRIC, DBS HK