兰州限购转限售, 落实分类调控房地产行业

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1 SWS Research Co. Ltd is a subsidiary of Shenwan Hongyuan Securities. 99 East Nanjing Road, Shanghai Industry Research Bringing China to the World 8 January 2018 Underweight Unchanged Analyst Kris Li A ARG379 lihong@swsresearch.com Related Reports Continued reforms, Dec27, Tightened regulation, Nov20, Joint ownership housing, Nov9, Leasing over buying, Nov6, Regional disparities, Nov2, Tightening policy, Sep25, Home-steady, Sep15, Rent yield, Aug4, Hot property, Jul18, Pricing signals, Jun20, Premium properties, Jun5, Finding new financing, May22, Intensifying concern, May5, Price rebound, Apr19, The company does not hold any equities or derivatives of the listed company mentioned in this report ( target ), but then we shall provide financial advisory services subject to the relevant laws and regulations. Any affiliates of the company may hold equities of the target, which may exceed 1 percent of issued shares subject to the relevant laws and regulations. The company may also provide investment banking services to the target. The Company fulfills its duty of disclosure within its sphere of knowledge. The clients may contact compliance@swsresearch.com for relevant disclosure materials or log into under disclosure column for further information. The clients shall have a comprehensive understanding of the disclosure and disclaimer upon the last page. 兰州限购转限售, 落实分类调控房地产行业 上周五晚间, 中国西北部甘肃省省会城市兰州出台一系列 2018 年最新房地产调控政策, 率先取消部分区域限购, 而对核心区域加码三年限售 我们认为兰州此次调控新政仅为个例, 并非其他城市将可能竞相松绑限购政策的前奏 此外, 相比房地产行业紧缩政策, 我们重申对持续进行中的金融去杠杆将带来的负面影响表示担忧 兰州并无限购必要 作为中国经济不发达的西北地区四个省会城市之一, 兰州是唯一一个自 年 4 月开始在全市大部分区域内实施限购的城市, 即在限购区域内, 兰州市户籍家庭已有两套及以上住房的, 不得再次购买新建商品住房及二手住房 ; 非兰州市户籍家庭仅允许购买一套新建商品住房或二手住房, 须提供连续缴纳的 3 年及以上社会保险证明或 1 年及以上个人所得税证明, 已有一套及以上住房的, 不得再次购买新建商品住房及二手住房 兰州 2016 年新房销售面积同比增长 23%, 而同期房屋销售均价仅同比微涨 3.2%, 相比较同期过热城市只能算作温和复苏 继实施该非必要的限购政策三个季度之后, 兰州 年新房销售面积同比下降 17%, 尽管同期房屋销售均价同比增长 3.7% 核心区域加码限售 此次兰州出台的 2018 年调控新政中, 取消了三个近郊区 ( 西固区 九州开发区 高坪区 ) 的住房限购政策, 而对核心城区 ( 城关区 七里河区 安宁区 ) 继续实行限购政策, 即兰州户籍家庭最多可购买两套, 非兰户籍家庭最多可购买一套, 但不再要求提供社保证明和纳税证明 与此同时, 为响应中央对 房子是用来住的, 不是用来炒的 调控号召, 兰州宣布对核心城区 ( 城关区 七里河区 安宁区 ) 和一个近郊区 ( 西固区 ) 实施限售政策, 即个人在上述区域内购买的住房 ( 含新建商品住房和存量住房 ), 自取得 不动产权证书 满三年方可上市交易, 由此兰州成为全国范围内第 46 个执行限售政策的城市 ( 通常限售期为 2-5 年 ) 高阶城市更具吸引力 在目前执行限购的 50 余个城市中, 兰州可被认为是经济基本面最差的城市, 根据我们梳理, 我们预计约有 10 个并无限购必要的三线城市将可能跟随松绑限购而转向加码限售, 而其余 40 个城市放松调控的可能性较小 实际上从 年第三季度开始, 我们注意到多个执行严格限购政策的二线城市开始放宽落户限制以绕开限购, 例如西安 济南 长沙 武汉以及近期扩展到郑州和南京, 均出台一系列人才落户政策, 本科学历甚至专科学历的非户籍人口可快速在上述城市中获得当地户籍并由此获得购房资格 我们认为, 更多城市将可能出台类似的政策微调, 但也进而推动更多人口从三四线城市流入一二线城市, 由此导致三四线城强劲新房销售 ( 占全国销售面积的 70%) 的可持续性愈加存疑 流动性展望不容乐观 2018 年第一周, 我们注意到监管层不断发布一系列新规, 旨在进一步标准化各类金融机构开展的业务 ( 包括银行业和非银行业 ), 在我们看来, 以防范金融系统性风险的去杠杆化可能不可避免地导致整体流动性收紧 此外, 正如我们此前所强调的, 申万宏观判断全年新增人民币贷款将从 年的 13.8 万亿增加至 2018 年的 14 万亿 万亿, 但我们认为以按揭贷款为主的居民中长期贷款将进一步收缩至 4.2 万亿 -5 万亿之间 ( 相比 2015 年为 3 万亿,2016 年为 5.7 万亿, 以及 年前 11 个月为 5 万亿 ), 使其在全年新增人民币贷款中所占比例降至 30-35%, 而银行面对额度趋紧以及价格上涨伴随的更高风险将可能要求更高的贷款利率 标的推荐 香港上市的大中型内地开发商股价于 2018 年第一周平均上涨约 14%, 而此次 A 股同业反弹的势头更为强劲 目前板块平均估值为 11.1 倍 17 年 PE,8.6 倍 18 年 PE, 以及 1.4 倍 17 年 PB,1.2 倍 18 年 PB, 我们认为市场对此次调控有望松动反应过度, 而忽视了持续调控政策以及金融去杠杆带来的累积影响 此外, 随着高价地陆续上市, 开发商布局在核心一二线城市的项目销售毛利率在 2018 年限价不取消的情况下可能面临向下压力, 与此同时, 开发商融资成本将持续上升, 而融资渠道也将有所分化 整体上我们认为 2018 年国有开发商比民营开发商更安全, 区域上我们更看好高阶城市土地多的企业, 并认为开发物业和持有物业并重的开发商更具有抗风险能力, 综合而言我们推荐华润置地, 龙湖地产和远洋集团

2 Lanzhou, capital city of northwestern China's Gansu Province, announced a change in real estate purchases policy, shifting restrictions from purchases to resales of homes. We view the policy as an isolated instance specific to the city rather than signaling a nationwide policy of property restriction relaxation. Meanwhile, we reiterate our cautious view on the market amid ongoing deleveraging. We remain Underweight the sector. Unnecessary limits on home purchase. Lanzhou was the only one of the four provincial capitals in under-developed northwestern China to introduce home purchase restrictions in early. The city blocked locally registered households from acquiring more than two homes, while nonlocals were restricted to just one home in the city, after providing evidence of having been taxregistered in the city for at least a year. Lanzhou reported a 23% YoY increase in new home sales volume in 2016 while home prices increased just 3.2% YoY, a mild rate compared with other cities introducing restrictions. With three quarters of home purchase limits, full-year transaction volume in the city was down 17% YoY. Additional restrictions on resales. The incoming regulation, under which purchase restrictions apply only in city centre districts (removing suburban districts) and local households no longer need to demonstrate tax or social security payments, represent a policy loosening. However, to remain compliant with the central governments directive to ensure that housing be used only for habitation, not speculation, the local government banned home resales within three years of purchase in all city centre districts and one suburban district, becoming the 46 th city in China to introduce home resale restrictions (generally for 2-5 years). Attractiveness of higher-tier of cities. Lanzhou could be considered the city with weakest economic fundamentals among the c.50 cities with home purchase limits in place. Thus, we see some likelihood that c.10 tier-3 cities with unnecessary limits on home purchases may follow suite in shifting restrictions from purchases to resales, while the remaining cities are likely to maintain their current policy trajectory. We note that, starting from 3Q17, some tier-2 cities have already started to relax internal immigration rules to indirectly ease purchase restrictions, while others have started offering residence permits to people with higher education degrees to become eligible to buy homes immediately. More such fine-tuning measures may be possible, however, this in our view would attract more home buyers from lower-tier cities to higher-tier cities, hence the sustainability of resilience in home sales in lower-tier cities in China (accounting for c.70% of national volumes) may be under pressure. Unfavorable liquidity outlook. In the first week of 2018 we saw non-stop releases of new regulations targeting further standardisation of business conducted by financial institutions including both banking and non-banking sectors, aimed at preventing systemic risks, which we view as potentially detrimental to market liquidity. Our macroeconomics team estimates total incremental renminbi-denominated loans to increase from Rmb13.8tn in 17E to Rmb tn in 18E, while we expect mortgage loans to narrow to Rmb4.2-5tn (vs Rmb5tn in January- November ), or just 30-35% of total incremental loans, and the smaller quota and higher risks along the price hike to cause banks to ask for higher mortgage rates. Stock recommendation. Medium- to large-cap Hong Kong-listed Chinese developers rebounded 14% in the first week of 2018, while A-share peers rallied even more strongly. The average valuation is now at 11.1x 17E PE, 8.6x 18E PE, and 1.4x 17E PB, 1.2x 18E PB. We view such valuations as representing an overreaction to relaxation expectations while overlooking the accumulated impact of property tightening and financial deleveraging. Should price-capping measures continue in higher-tier cities, developer margins may be under pressure, while refinancing costs may rise and developers may increasingly diverge based on access to funding. We maintain our preference on state-owned names for 2018, and we favour players with footprints in higher-tier cities and balanced portfolios in both development property and investment property, such as China Resources Land (1109: HK Outperform), Longfor Properties (960: HK Outperform) and Sino-Ocean Group Holding (3377: HK Outperform). Please refer to the last page for important disclosures Page 1

3 Specific case of Lanzhou In late Friday night, Lanzhou, the capital city of northwest China's Gansu Province, released the new property tightening package for the year 2018 with restrictions transferring from purchase to re-sale. We take it as a specific case for this Tier-3 city instead of a prelude signaling more relaxations on the way from the other cities. In addition, as compared with the industry austerity measures, we reiterated our concern on the negative impact resulting from the on-going financial de-leverage. Unnecessary limits on home purchase Lanzhou, as the only one of the four capital cities in under-developed Northwest China, began to impose restrictions on home purchase in April in most of the districts in the city, the local family with Hukou could not buy a third home whereas non-local family could only buy one home after paying more than one-year tax or three-year social security. Lanzhou reported a 23% YoY increase of new home sales volumes in 2016 together with merely 3.2% YoY rise of home prices, which could only be taken as a mild recovery as compared with those overheated cities. After three quarters with unnecessary limits on home purchase in place, the transaction volumes of new homes for the whole year dropped by 17% YoY from 2016 despite home prices continued to rise by 3.7% on the YoY basis. Fig 1: YoY growth of new home sales volume in key 40 cities, City Beihai 66% 3% -10% -17% 34% 14% -6% 14% 76% Sanya 48% 24% 15% 10% 1% -45% 6% 35% 41% Shijiazhuang 13% 38% 72% -9% 12% -7% -26% 21% 37% Taiyuan 14% 40% -23% 70% 30% -2% 7% 32% 36% Kunming 52% 46% -15% -1% 13% -6% 3% 12% 26% Wenzhou 93% -29% -41% 59% 76% 20% 20% 41% 25% Fuzhou 102% -18% 1% 37% 51% -26% -8% 36% 24% Harbin 24% 29% 9% 17% 19% -25% -12% 13% 23% Nanchang 42% 6% -11% 37% 26% 0% 9% 32% 22% Haikou 13% 10% -1% 28% 27% -7% 11% 19% 21% Nanning 54% -12% 0% -4% 10% 14% 22% 31% 18% Ningbo 90% -24% -10% 3% 27% 2% 42% 33% 17% Dalian 42% 3% -26% 16% 14% -39% -11% 10% 16% Xi' an 69% 27% 11% -18% 8% 1% 5% 18% 15% Changchun 26% 20% 0% -1% -2% -13% 6% 19% 13% Shenyang 5% 11% 29% 13% -8% -33% -29% 16% 9% Chongqing 41% 6% 2% 1% 6% 1% 1% 14% 8% Guiyang 95% -4% 0% 29% 21% -31% 0% 5% 6% Xining 47% 40% 21% -34% 64% -3% -1% 12% 6% National Average 54% 8% 4% 1% 18% -9% 7% 22% 5% Wuhan 52% 5% 7% 19% 26% 13% 22% 21% 5% Yinchuan 72% 6% -21% 22% 40% 13% -26% 8% 3% Zhengzhou 74% 32% -9% -6% 7% -2% 31% 52% 3% Qingdao 67% 5% -24% -8% 25% -3% 21% 41% -1% 40-City Average 58% -7% -2% 9% 15% -8% 9% 22% -6% Urumqi 92% -13% 1% -15% 45% -18% 16% 12% -8% Chengdu 113% -10% 1% 4% 5% -3% -1% 34% -9% Hohhot 1% 28% 30% -19% -18% -10% 5% 7% -9% Wuxi 93% -3% -38% 48% -1% -5% 17% 35% -16% Lanzhou 30% -7% -21% 8% 34% 85% 32% 23% -17% Nanjing 70% -32% -10% 29% 30% -2% 27% -2% -17% Guangzhou 34% -11% -8% 10% 24% -14% 12% 21% -17% Shenzhen 73% -42% 17% 1% 8% -10% 58% -12% -20% Jinan 26% 18% 12% 4% 26% 3% 28% 33% -22% Hangzhou 107% -39% -14% 35% 5% -2% 36% 46% -25% Xiamen 137% -41% 11% 82% 21% -12% -32% -7% -28% Suzhou 127% -39% -18% 34% 29% -11% 34% 16% -29% Changsha 77% 20% -15% 0% 20% -20% 27% 37% -33% Shanghai 49% -42% -13% 8% 27% -12% 13% 1% -34% Tianjin 29% -7% 8% 4% 14% -14% 13% 51% -40% Beijing 82% -36% -14% 43% -8% -17% -1% -13% -44% Hefei 37% -27% 23% 5% 30% -9% -3% 33% -44% Note: 16 cities highlighted in blue were chosen by Chinese authorities to implement the first round of property tightening regulations in September Please refer to the last page for important disclosures Page 2

4 Additional restrictions on re-sale The change as disclosed by the 2018 package pointed to a loosening on home purchase, i.e., the restrictions would only implement in city urban districts (removing the three districts in the suburban areas) whereas non-local family could buy one home without subject to oneyear tax payment or three-year social security. However, meanwhile, to correspond to the call from the Central Government in terms of housing is used for inhabitation instead of speculation, Lanzhou rolled out new restriction on home re-sale with 3-years requirement after obtaining the housing ownership certificate in all the city urban districts as well as one district in suburban areas, making itself the 46 th city in China with restrictions on home re-sale (generally for 2-5 years). Fig 2: List of cities with restriction on purchase and re-sale Restriction on re-sale only Restriction on purchase and re-sale Restriction on purchase only Chongqing Guangzhou Ningbo Taiyuan Chengdu Tianjin Zhangjiagang Nanjing Suzhou Shaoxing Hangzhou Hefei Dezhou Wuhan Shenzhen Kunming Xiamen Shanghai Nantong Zhengzhou Beijing Guilin Jinan Jiujiang Guiyang Qingdao Ganzhou Nanning Zhuhai Zhenjiang Huizhou Changsha Huaian Wuhu Nanchang Zhongshan Fuqing Jiaxing Jiangmen Yueyang Xi'an Foshan Xiangyang Wuxi Zhuozhou Kaifeng Fuzhou Tangshan Dongguan Qinhuangdao Shijiazhuang Langfang Shenyang Huailai Yangzhou Cangzhou Changzhou Beihai Lanzhou Haikou Sanya Qionghai Wuzhishan Zhangjiakou Chengde Baoding Source: Local official websites, Media reports, SWS Research Fig 3: Timeline of implemented restrictions on home transactions by city Cities /3 /4 /5 /6 /7 /8 /9 /10 /11 / /1 Tier-1 Guangzhou Tier-2 (Capitals cities) Tier-3 (Medium cities) Tier-4 (County cities) Chengdu Xiamen Fuzhou Hangzhou Qingdao Fuzhou- Minhou Chengdu Hainan Xi'an Jinan Zhengzhou Haikou Nanjing Kaifeng Changsha Nanning Source: Local official websites, Media reports, SWS Research Xi'an Shenyang Wuhan Taiyuan Taiyuan Chongqing Nanchang Nanning Changsha Guiyang Shijiazhuang Dongguan Zhangjiagang Guilin Fujian- Fuqing Zhuhai Huizhou Changzhou Dongguan Yangzhou Chengde Qionghai Nantong- Qidong Baoding- Xushui Sanya Wuhu Chengde Jiaxing Wuxi Baoding Zhangjiakou Hainan- Wuzhishan Guangxi- Beihai Guangxi- Beihai Shijiazhuang Wuhan Lanzhou Sanya Shaoxing Dezhou Chenggong- Kunming Xiangyang- Hubei Yangzhou Yueyang- Hunan Please refer to the last page for important disclosures Page 3

5 Fig 4: Breakdown of home transaction terms by buyer type For top talents For common individuals For companies 2-year 3-year 5-year 10-year Xiamen Fuzhou Guangzhou Qingdao Minhou Xushui Changzhou Dongguan Chengde Hainan Xi'an Jinan Qionghai Wuhu Wuzhishan Chengde Jiaxing Wuxi Nanning Fuqing Shenyang Taiyuan Chongqing Nanchang Beihai Sanya Guilin Zhangjiagang Taiyuan Shaoxing Chenggong Shijiazhuang Dezhou Xiangyang Yueyang Dongguan Nanning For homes with restricted prices Source: Local official websites, Media reports, SWS Research Qidong Zhuhai Huizhou Chengdu Zhengzhou Nanjing Kaifeng Zhangjiakou Changsha Guiyang Wuhan Yangzhou Lanzhou Hangzhou Guangzhou Zhuhai Hainan Qionghai Wuzhishan Wuxi Chengdu Wuhan Xi'an (new homes) Shenyang (non-local buy new homes) Shijiazhuang Sanya (non-local) Beihai (third homes) Haikou Sanya Nanchang Baoding Attractiveness of higher-tier of cities Lanzhou could be considered the city with weakest economic fundamentals among a total of c.50 cities with home purchase limits in place, thus we see likelihood that c.10 tier-3 cities with unnecessary limits on home purchase may follow the restriction transition from purchase to re-sale, while the rest c.40 city were expect to continue existing tightening policy. Actually starting from Q3, we ve already seen some tier-2 cities subject to harsh home purchase restrictions started to loosen the Hukou permits to indirectly avoid the purchase limit, city Xi an, Jinan, Changsha, Wuhan, and recently expanded to Zhengzhou and Nanjing have all allowed people with bachelor or even college degree to easily get the residence permit in the city and become a local family eligible for buying homes immediately. More such kind of fine-tuning might be possible, however, this in our view would attract more home buyers from lower-tier of cities to higher-tier of cities, hence the sustainability of resilience in home sales in lower-tier cities in China (accounting for c.70% of national volumes) turns to be further skeptical. Fig 5: Some tier-2 cities started to loosen the Hukou permits since Q3 Date City Requirement to get residence permit Jun-17 Xi'an Ease the age restriction from below 35 to below 45 for people with bachelor degree, no age restriction for people with master or doctor degree Jul-17 Jinan Non-local family with one-year social security payment and existing homes (including apartments for residential usage) in Jinan Aug-17 Changsha People with bachelor degree below 35 Oct-17 Wuhan Ease the age restriction from below 30 to below 40 for people with college degree, from below 35 to below 40 for people with bachelor degree, and no age restriction for people with master or doctor degree Dec-17 Zhengzhou No tax payment requirement for non-local people with bachelor degree or vice senior title (senior technician) when purchase first home Jan-18 Nanjing People with bachelor degree below 40, no age restriction for people with master or doctor degree Source: Local official websites, Media reports, SWS Research Please refer to the last page for important disclosures Page 4

6 Nov/07 May/08 Nov/08 May/09 Nov/09 May/10 Nov/10 May/11 Nov/11 May/12 Nov/12 May/13 Nov/13 May/14 Nov/14 May/15 Nov/15 May/16 Nov/16 May/17 Nov/17 Nov/07 May/08 Nov/08 May/09 Nov/09 May/10 Nov/10 May/11 Nov/11 May/12 Nov/12 May/13 Nov/13 May/14 Nov/14 May/15 Nov/15 May/16 Nov/16 May/17 Nov/ January 2018 Industry Research Fig 6: Years to deplete the aggregated inventories mn sqm years 2, , , , , , Fig 7: Years to deplete the aggregated inventories vs. inventories and new launches Years Inventories added/decreased in the year (LHS) Aggregated Inventories at year-end (LHS) Years to deplete the aggregated inventories (RHS) Years to deplete the aggregated inventories (RHS) Years to deplete inventories and new launches Fig 8: Years to deplete the aggregated inventories by tiers of city Years Fig 9: Years to deplete inventories and new launches by tiers of city Years Years to deplete aggregated inventories in Tier-1 & Tier-2 cities Years to deplete aggregated inventories in Tier-3 & Tier-4 cities Years to deplete inventories and new launches in Tier-1 & Tier-2 cities Years to deplete inventories and new launches in Tier-3 & Tier-4 cities Fig 10: National new home sales volume YoY change 100% 75% 50% 25% 0% -25% -50% Fig 11: National new home sales value YoY change 200% 150% 100% 50% 0% -50% % Chg YoY of New Home Transaction Volumes Nationwide, YTD % Chg YoY of New Home Transaction Volumes Nationwide, Monthly % Chg YoY of New Home Sales Value Nationwide, YTD % Chg YoY of New Home Sales Value Nationwide, Monthly Please refer to the last page for important disclosures Page 5

7 M M M17 E M17 8 January 2018 Industry Research Unfavorable liquidity outlook In the first week of 2018 we saw non-stopping releases of new regulations targeting at further standardization of businesses conducted by financial institutions including both banking and non-banking sectors, the de-leverage with an aim to prevent the financial system risks in our view might inevitably result in the contraction of the overall liquidity. In addition, just as we ve highlighted before, even our Macro team estimated the total incremental rmb loans to further increase from Rmb13.8tn in 17E to Rmb tn in 2018, we expect the mortgage loans would be narrowed to Rmb4.2-5tn (vs Rmb3tn /Rmb5.7tn /Rmb5tn of 2015 /2016 /11M) with its proportion as of total incremental loans lowered to the range of 30-35%, while the smaller quota and higher risks along with the price hike would cause the banks ask a higher mortgage rates. Fig 12: Actual and estimated total incremental rmb loans, E Fig 13: Incremental household loans as % of total incremental rmb loans, Rmb bn Rmb bn 16,000 12,000 60% 14,000 10,000 50% 12,000 8,000 40% 10,000 8,000 6,000 30% 6,000 4,000 20% 4,000 2,000 10% 2, % 0 Total Incremental Rmb Loans (LHS) Total Incremental Rmb Loans (LHS) Incremental Household Loans (LHS) Incremental Household Loans as % of Total Incremental Rmb Loans (RHS) Fig 14: Incremental medium- and long-term household loans as % of total incremental Fig 15: Incremental medium- and long-term household loans as % of incremental rmb loans, household loans, Rmb bn Rmb bn 12,000 50% 8, % 10,000 8,000 6,000 4,000 2, % 40% 35% 30% 25% 20% 15% 10% 5% 0% 7,000 6,000 5,000 4,000 3,000 2,000 1, % 80% 70% 60% 50% 40% 30% 20% 10% 0% Total Incremental Rmb Loans (LHS) Incremental Medium- and Long-term Household Loans (LHS) Incremental Medium- and Long-term Household Loans as % of Total Incremental Rmb Loans (RHS) Incremental Household Loans (LHS) Incremental Medium- and Long-term Household Loans (LHS) Incremental Medium- and Long-term Household Loans as % of Incremental Household Loans (RHS) Please refer to the last page for important disclosures Page 6

8 Jan/05 Jul/05 Jan/06 Jul/06 Jan/07 Jul/07 Jan/08 Jul/08 Jan/09 Jul/09 Jan/10 Jul/10 Jan/11 Jul/11 Jan/12 Jul/12 Jan/13 Jul/13 Jan/14 Jul/14 Jan/15 Jul/15 Jan/16 Jul/16 Jan/17 Jul/17 Jan/18 8 January 2018 Industry Research Stock recommendation Large-and medium-cap Hong Kong listed Chinese developers have averagely rebounded by c.14% in the first week of 2018, and this time the A-share peers rallied with even stronger momentum. The average valuation has beat 11.1x/8.6x E/2018E PE, and 1.4x/1.2x E/2018E PB, the street overreacted to the relaxation hope while overlooking the accumulated impact from property tightening and financial de-leverage. Developer s margin might face more pressure should the price-capping measures continue in the higher-tier of cities throughout 2018 as more projects with higher land cost would be launched, whereas the refinancing cost would continuously rise and the access to the funds might also be differentiated among the developers. We remain preference on SOE developers to private developers in 2018, and we favor players with more footprints in higher-tier cities and balanced portfolios in both development property and investment property, namely, CR Land (1109: HK, Outperform), Longfor (960: HK, Outperform) and Sino-Ocean (3377: HK, Outperform). Fig 16: Comparison of average discount to NAV among mid- to large Hong Kong-listed China developers to HSCEI 60% (pts) Avg discount of NAV (LHS) HSCEI (RHS) 21,000 40% 18,000 20% 0% 15,000 12,000-20% -40% 9,000-60% 6,000-80% 3, % 0 Source: Wind, SWS Research Fig 17: Valuation and target prices Company Code Market Cap Target price PE (x) PB (x) 17E Dividend Shares Performance Rating NAV Disc (HK$bn) (HK$) 16A 17E 18E 16A 17E 18E yield 2018 COLI 688 HK 306 Outperform % 3.0% 25% 11% Country Garden 2007 HK 348 Hold % 1.8% 248% 9% CR land 1109 HK 172 Outperform % 3.2% 36% 8% Longfor 960 HK 136 Outperform % 2.7% 106% 20% Sunac 1918 HK 157 Sell % 0.2% 414% 16% R&F 2777 HK 63 Underperform % 3.4% 100% 12% Shimao 813 HK 69 Hold % 3.9% 73% 20% Sino-ocean 3377 HK 48 Outperform % 3.7% 60% 18% KWG 1813 HK 33 Hold % 4.3% 128% 19% Poly Ppty 119 HK 16 Buy % 1.9% 58% 9% Yuzhou 1628 HK 19 Outperform % 5.9% 74% 9% Average % 3.1% 125% 14% Source: Bloomberg, Company data, SWS Research Please refer to the last page for important disclosures Page 7

9 Appendix Fig 1: City-specific tightening measures in 16 overheated cities Time City Increase of minimum down-payment ratio Additional restrictions on home purchases 25/3/2016 Shanghai Remained unchanged at 30% for first-home mortgages, but lifted to 50% (homes =<144 sqm) and 70% (homes >144 sqm) for secondhome mortgages from 40% 26/3/2016 Shenzhen Remained unchanged at 30% for first-home mortgages and 40% for second-home mortgages 27/9/2016 Hangzhou Remained unchanged at 20% for first-home mortgages but lifted to 50% (vs 30%) for second-home mortgages 30/9/2016 Beijing Lifted from 30% to 35% (homes =<144 sqm) and 40% (homes >144 sqm) for first-home mortgages, from 40% to 50% (homes =<144 sqm) and 70% (homes >144 sqm) for second-home mortgages 30/9/2016 Tianjin Remained unchanged at 20% for first-home mortgages applied by local buyers and 30% for second-home mortgages (being lifted to 30% and 40% respectively starting from 29th November 2016), but lifted to 40% for first-home mortgages applied by non-local buyers 1/10/2016 Zhengzhou Lifted to 30% (vs 20%) for first-home mortgages and to 40% (vs 30%) for second-home mortgages 1/10/2016 Chengdu Remained unchanged at 20% for first-home mortgages but lifted to 40% (vs 30%) for second-home mortgages 2/10/2016 Wuxi Remained unchanged at 20% for first-home mortgages but lifted to 40% (vs 30%) for second-home mortgages 2/10/2016 Jinan Lifted to 30% (vs 20%) for first-home mortgages and to 40% (vs 30%) for second-home mortgages 2/10/2016 Hefei Lifted from 20% to 30% for first-home mortgages and from 30% to 40% or 50% for second-home mortgages without and with outstanding loans 2/10/2016 Wuhan Lifted to 25% (vs 20%) for first-home mortgages and to 50% (vs 30%) for second-home mortgages 4/10/2016 Suzhou Lifted from 20% to 30% for first-home mortgages, from 30% to 50% or from 50% to 80% for second-home mortgages without or with outstanding loans 4/10/2016 Shenzhen Remained unchanged at 30% for first-home mortgages (with neither home nor mortgage records), but lifted from 40% to 50% for buyers without home but with mortgage records or to 70% for buyers with home 5/10/2016 Guangzhou Remained unchanged at 30% for first-home mortgages (eligible for buyers with mortgage record but no outstanding loans), but lifted to 70% (vs 40%) for second-home mortgages with outstanding loans 5/10/2016 Nanjing Lifted from 20-25% to 30% for first-home mortgages, from 35% to 50% or from 50% to 80% for second-home mortgages without or with outstanding loans 5/10/2016 Xiamen Lifted from 20-25% to 30-35% for first-home mortgages, from 50-60% to 50-70% for second-home mortgages (depending on the mortgage records and outstanding loans) 6/10/2016 Fuzhou Lifted from 20% to 30% for first-home mortgages of local buyers or to 40% for non-local buyers, from 30% to 40% for second-home mortgages 14/11/2016 Wuhan Lifted from 25% to 30% for first-home mortgages, remain 50% (homes=<144 sqm) or lifted from 50% to 70% (homes >144 sqm) for second-home mortgages 28/11/2016 Shanghai Remained unchanged at 30% for first-home mortgages (being lifted to 35% starting from 29th November 2016 and a stricter eligibility for first-home mortgage which requires neither home nor mortgage records was rolled out), and 50% (homes =<144 sqm) or 70% (homes >144 sqm) for second-home mortgages 23/12/2016 Zhengzhou Remained unchanged at 30% for first-home mortgages, but lifted from 40% to 60% for second-home mortgages (either with one home or loan records) 26/12/2016 Jinan Remained unchanged at 30% for first-home mortgages and 40% for second-home mortgages 2/3/ Hangzhou Remained unchanged at 30% for first-home mortgages, and 40%- 60% for second-home mortgages (depending on the mortgage records and outstanding loans) 2011 (Local family can't buy a third home), whereas the tax payment requirement for non-local family purchasing home was lifted from 2 years to 5 years 2011 (Local family can't buy a third home), whereas the tax payment requirement for non-local family purchasing home was lifted from 1 year to 3 years Non-local family without 1-year tax payment can't buy a second home (being further revised to also applying to the first home to be bought by non-local family starting from 10th November 2016) 2011, i.e., local family can't buy a third home, non-local family can't buy home without 5-year tax payment Non-local family can't buy a second home Local family with two homes, non-local family with one home can't buy home smaller than 180 sqm Each natural person or legal entity would only be allowed to buy one more home after the policy in place Non-local family with one home can't buy another newly-built home Local family with three homes, non-local family with one home can't buy home Local family with two homes can't buy newly-built home, non-local family with one home or without 1-year tax payment can't buy home Local family with two homes, non-local family with one home can't buy home Local family with two homes, non-local family with one home or without 1-year tax payment can't buy home 2011 (Local family can't buy a third home), whereas the tax payment requirement for non-local family purchasing home was further lifted from 3 years to 5 years 2011, i.e., local family can't buy a third home, non-local family can't buy home without 3-year tax payment Local family with two homes can't buy newly-built home, Local single person can't buy a second home, non-local family without 1-year tax payment can't buy home Local family with two homes, non-local family with one home or without 1-year tax payment can't buy home smaller than 180 sqm (vs 144 sqm) Local family with two homes, non-local family with one home or without 1-year tax payment can't buy home smaller than 144 sqm Local family with two homes, non-local family with one home or without 2-year tax payment can't buy home 2011, i.e., local family can't buy a third home, non-local family can't buy home without 5-year tax payment Local family with two homes, non-local family with one home or without 2-year tax payment can't buy home (incl. newly-built and existing homes) Local family with two homes, non-local family with one home or without 2-year tax payment can't buy home Tax payment requirement for non-local family purchasing home was further lifted from 1 year to 2 years, and local family with two homes can t buy home (incl. newly-built and existing homes) Please refer to the last page for important disclosures Page 8

10 16/3/ Nanjing Lifted to 30% for first-home mortgages in Liuhe, Gaochun and Lishui, from 30% to 40% for second-home mortgages in Gaochun and Lishui, suspended third-home mortgages with outstanding loans 17/3/ Beijing Lifted from 50% to 60% (homes =<144 sqm), from 70% to 80% (homes >144 sqm) for second-home mortgages, and suspended mortgages loans with terms of above 25-year 17/3/ Guangzhou 23/3/ Chengdu 24/3/ Xiamen 26/3/ Beijing 28/3/ Hangzhou 28/3/ Xiamen 30/3/ Guangzhou 31/3/ Tianjin Remained unchanged at 30% for first-home mortgages (eligible for buyers with mortgage record but no outstanding loans), but lifted to 40-70% for first-home with loan records, remain unchanged at 70% for second-home mortgages with outstanding loans Remained unchanged at 20% for first-home mortgages and 40% for second-home mortgages Remain unchanged at 30-35% for first-home mortgages and 50-70% for second-home mortgages (depending on the mortgage records and outstanding loans) Remain unchanged at 35% (homes=<144 sqm) and 40% (homes >144 sqm) for first-home mortgages, and 60% (homes =<144 sqm) and 80% (homes >144 sqm) for second-home mortgages Remained unchanged at 30% for first-home mortgages, but lifted to 60% for second-home mortgages (depending on the mortgage records and outstanding loans) Continue to conduct existing mortgages policies while taking mortgage records into account Continue to conduct existing mortgages policies while taking mortgage records into account Remained unchanged at 30% for first-home mortgages applied by local buyers and 40% for second-home mortgages starting from 29th Nov 2016, and 40% for first-home mortgages applied by nonlocal buyers Remained unchanged at 20% for first-home mortgages and 40% for 12/4/ Chengdu second-home mortgages Source: Local official websites, Media reports, SWS Research Tax payment requirement for non-local family purchasing home was further lifted from 1 year to 2 years, local family with two homes and non-local family with one home can t buy home (incl. newly-built and existing homes) 2011, i.e., local family can't buy a third home, non-local family can't buy home without 5-year tax payment 2011, i.e., local family can't buy a third home, local single can t buy a second home, and lifted tax payment requirement for non-local family purchasing home from 2-year to 5-year Second-hand housing would be included in the restriction policies, and families can't buy home in certain areas without district-specific Hokou or 24-months tax payment Local individual (incl. divorced) can only buy one home (incl. newly-built and second-hand housing); family would be allowed to purchase homes after transferred housing for 3 years; newly-built housing would be allowed for trading after obtained property license for 2 years. Individual without residential and commercial housing records in Beijing would be allowed to buy saleable commercial housing with 5-year tax payment Local individual (incl. divorced) can only buy one home (incl. newly-built and second-hand housing); housing purchased by company would be allowed to sell after 3 years; local family in four districts (Tonglu, Jiande, Linan and Chunan) can buy home in central areas after obtaining Hukou for 2 years Tax payment requirement for non-local family purchasing home smaller than 180 sqm was lifted from 2-year to 3-year 2011, i.e., local family can't buy a third home, local single can t buy a second home, non-local family can't buy home without 5-year tax payment, non-local family can only buy one home in Zengcheng and Conghua District, newly-purchased housing would be allowed to sell after obtaining property license for 2 years Non-local family with one home, local family with two homes or local individual with one home can't buy more newly-built and second-hand homes, non-local family without 2-year tax payment can't buy home Newly-purchased housing (incl. newly-built and second-hand) can be sold after obtaining property certificate for 3 years Please refer to the last page for important disclosures Page 9

11 Information Disclosure: The views expressed in this report accurately reflect the personal views of the analyst. The analyst declares that neither he/she nor his/her associate serves as an officer of nor has any financial interests in relation to the listed corporation reviewed by the analyst. None of the listed corporations reviewed or any third party has provided or agreed to provide any compensation or other benefits in connection with this report to any of the analyst, the Company or the group company(ies). 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12 Independent investment consultant should be consulted before any investment decision is rendered based on this report or at any request of explanation for this report where the receiver of this report is not a client of the Company. The Company possesses all copyrights of this report which shall be treated as non-public information. The Company reserves all rights related to this report. Unless otherwise indicated in writing, all the copyrights of all the materials herein belong to the Company. In the absence of any prior authorization by the Company in writing, no part of this report shall be copied, photocopied, replicated or redistributed to any other person in any form by any means, or be used in any other ways which will infringe upon the copyrights of the Company. All the trademarks, service marks and marks used herein are trademarks, service marks or marks of the Company, and no one shall have the right to use them at any circumstances without the prior consent of the Company. This report may be translated into different languages. The Company does not warrant that the translations are free from errors or discrepancies. This report is for distribution in Hong Kong only to persons who fall within the definition of professional investors whether under the Securities and Futures Ordinance (Chapter 571 of the laws of Hong Kong) (the SFO ) or the Securities and Futures (Professional Investor) Rules (Chapter 571D of the laws of the Hong Kong under the SFO). This report is for distribution in the United Kingdom only to persons who (i) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) order 2001 (as amended) (the Order ) or (ii) are persons falling within Article 49(2)(a) to (d) ( High Net Worth Companies, Unincorporated Associations, etc ) of the Order (All such persons together being referred to as Relevant Persons ). This document is directed only at Relevant Persons. Other Persons who are not Relevant Persons must not act or rely upon this document or any of its contents. Distribution in Singapore If distributed in Singapore, this report is meant only for Accredited Investors and Institutional Investors as defined under Section 4A of the Securities and Futures Act of Singapore. If you are not an Accredited Investor or an Institutional Investor, you shall ignore the report and its contents. The Singapore recipients of the report are to contact the Singapore office of Shenwan Hongyuan Singapore Private Limited at , or in respect of any matters arising from, or in connection with, the report. Please refer to the last page for important disclosures Page 11