Industry Report China Property 1 APRIL 2018 Contacts Dagong Global Credit Rating (HK) Co. Ltd Tel: (852) 3615 8605 contact@dagonghk.com National real estate sales volume normalize to 2.3% YoY in 2M18 National Bureau of Statistics (NBS) released real estate data for the first 2 months of 2018. Sales volume saw an increase of 2.3% YoY, further softening from 5.3% YoY in and 2 YoY in. That said, we believe major developers will continue to record strong sales given the market share gain and increase in sellable resources. We believe the strong sales come mainly on the back of a pickup in tier 3 city sales, as rising mortgage rates and tougher homepurchase restrictions have channeled property demand away from tier1 cities, supporting realestate sales growth in tier2 and tier3 cities. Low inventory level to mitigate the risk of sharp property price correction Despite the strong land sales growth in, the base is low. We believe this should help maintain inventory at a low level, thus mitigating the risk of sharp property price correction. National residential inventory has been improving 13 months in a row, with completed unsold inventory dropping to 301 million sqm, down 2 YoY (versus 403 million sqm at end, down 11% YoY). Average selling price (ASP) slightly weakened to RMB8,290 per sqm, mainly due to policy tightening in tier 12 cities, and greater sales contribution from tier 34 cities. Construction activities momentum soften due to the Chinese New Year effect For construction activities, new starts growth increase by 5. YoY in 2M18, soften from 10.5% YoY in. GFA completion also declined by 17.1% YoY (versus 7. YoY in ), partly due to the Chinese New Year effect. Property under construction stayed largely stable at 1. YoY for 2M18, a similar level compared with 2.9% YoY growth in. However, we believe the momentum to pick up during 1H18 given the improvement in land sales since 3Q and a shrinking inventory level. Industry consolidation to continue on high land costs We believe small property developers will lose their competitiveness due to the consistently high land costs while larger developers to gain market shares, on the back of their 1) strong balance sheets and lower funding costs, 2) diverse land acquisition channels through primary land replenishment, redevelopment and M&As, 3) abundant land bank and project pipelines. We believe as onshore liquidity will likely remain tight throughout 2018, smaller developers would likely face bigger refinancing risks when their debt matures. We expect market consolidation to accelerate, with the top 10 players market share to reach +3 in 2018, versus 25%/2 in /16 The Center, 99 Queen s Road Central, Hong Kong http://www.dagonghk.com
Feb13 Jul13 Dec13 May14 Oct14 Mar15 Aug15 Jan16 Jun16 Nov16 Apr17 Sep17 Feb18 Average Selling Price, RMB/sqm Jan13 May13 Sep13 Jan14 May14 Sep14 Jan15 May15 Sep15 Jan16 May16 Sep16 Jan17 May17 Sep17 FY= Industry Report China Property 1 APRIL 2018 Potential property tax introduction should have limited near term impact During the opening meeting of the 13th National People s Congress, Premier Li Keqiang stated that in the past 5 years, the tier3/4 cities have seen obvious results in destocking and ASP growth has been reined in. He also mentioned that China will prudently advance legislation on property tax. We see the property tax a measure to encourage owners to rent the property out to offset the cost of holding, and thus increasing the supply especially in lower tier cities, but not a way to curb the property market. As land sales have become a critical income source (304 combined on our estimates) for local governments, we believe neither the central nor local governments can afford an abrupt collapse in property markets. We do not believe property tax will be rolled out soon either, thus limited impact to property market in short term. China Property: Average selling price China Property: Average selling price Home Index for Major Cities 9,000 7,000 6,000 3 2 1 160 140 120 5,000 4,000 80 60 3,000 1 Total Sales ASP (LHS) Beijing Shanghai Guangzhou Shenzhen 2
Industry Report China Property 1 APRIL 2018 China s major residential sales and construction trend Supply China residential property Newly Started (Mln sqm, YTD) 1,307 1,458 1,249 1,067 1,159 1,281 130 YoY % 1 15% 9% 11% 5% Under Construction (Mln sqm, YTD) 4,290 4,863 5,151 5,116 5,213 5,364 4,307 YoY % 1 13% 1% 3% Completed (Mln sqm, YTD) 790 787 809 738 772 718 97 YoY % 15% 3% 9% 5% 7% 17% Home Inventory (Mln sqm) 236 324 407 452 405 302 301 YoY % 4 37% 2 11% 1 2 2 Demand China residential property Total Sales Value (Bln, YTD) 5,347 6,770 6,240 7,275 9,906 11,024 1,055 YoY % 1 27% 17% 3 11% 1 Total Sales Volume (Mln sqm, YTD) 985 1,157 1,052 1,124 1,375 1,448 127 YoY % 17% 9% 7% 2 5% Total Sales ASP (RMB sqm, YTD) 5,428 5,851 5,932 6,472 7,204 7,614 8,290 YoY % 1% 9% 11% 15% Supply China residential property Mar17 Apr17 May17 Jun17 Jul17 Aug17 Sep17 Oct17 Nov17 Dec17 Feb18 Newly Started (Mln sqm, YTD) 103 120 121 145 103 104 120 120 120 130 YoY % 2 17% 1 3% 1 3% 2 5% Under Construction (Mln sqm, YTD) 4,332 4,457 4,581 4,727 4,832 4,933 5,053 5,154 5,270 5,364 4,307 YoY % 3% 3% 3% 3% 3% 3% 3% 3% 3% Completed (Mln sqm, YTD) 165 201 242 298 335 374 413 466 541 718 97 YoY % 1 3% 3% 1% 1% 3% 7% 17% Home Inventory (Mln sqm) 391 378 365 352 342 332 323 315 308 302 301 YoY % 15% 1 1 19% 21% 2 2 23% 2 25% 2 Demand China residential property Total Sales Value (Bln, YTD) 1,028 855 871 1,264 779 807 1,129 909 1,023 1,448 1,055 YoY % 2 1 15% 1 1 1 11% 1 1 11% 1 Total Sales Volume (Mln sqm, YTD) 130 111 114 168 101 106 147 121 138 188 127 YoY % 17% 13% 1 1 5% 5% Total Sales ASP (RMB sqm, YTD) 7,882 7,739 7,616 7,512 7,720 7,633 7,688 7,506 7,414 7,720 8,290 YoY % 7% 7% 1% 3% 1 13% 3
Total Sales Value, RMB Bn Total Sales Value, RMB Bn Total Sales ASP, RMB/sqm, % Total Sales ASP, RMB/sqm, % Home Inventory, Mn sqm, % Home Inventory, Mn sqm, % Industry Report China Property 1 APRIL 2018 China Property: Inventory trend 500 450 350 300 250 150 50 5 4 3 2 1 1 2 3 450 350 300 250 150 50 0 5% 1 15% 2 25% 3 Home Inventory (LHS) Home Inventory (LHS) China Property: Average selling price trend 9,000 7,000 6,000 5,000 4,000 3,000 2,000 1 1 8, 8, 7,800 7,600 7, 7, 7,000 6,800 2 1 Total Sales ASP (LHS) Total Sales ASP (LHS) China Property: national total sales value 12,000 10,000 6,000 4,000 2,000 4 3 2 1 1 2 1,600 1, 1, 800 600 25% 2 15% 1 5% Total Sales Value (LHS) Total Sales Value (LHS) 4
Mar14 Jun14 Sep14 Dec14 Mar15 Jun15 Sep15 Dec15 Mar16 Jun16 Sep16 Dec16 Mar17 Jun17 Sep17 Dec17 New Personal Mortgages, RMB Bn Money Supply M2, RMB Bn Apr11 Sep11 Feb12 Jul12 Dec12 May13 Oct13 Mar14 Aug14 Jan15 Jun15 Nov15 Apr16 Sep16 Feb17 Jul17 Dec17 Money Supply M2, RMB Bn Money Supply M2, RMB Bn Total Sales Volume, Mn sqm Total Sales Volume, Mn sqm Industry Report China Property 1 APRIL 2018 China Property: National total sales volume 1,600 1, 1, 800 600 3 2 1 1 2 180 160 140 120 80 60 40 20 1 1 1 1 Total Sales Volume, (LHS) Total Sales Volume (LHS) China: Money supply,000 180,000 160,000 140,000 120,000,000 80,000 60,000 40,000 20,000 1 1 1,000 180,000 160,000 140,000 120,000,000 80,000 60,000 40,000 20,000 1 1 1 1 Money Supply M2 (LHS) YoY% (RHS) Money Supply M2 (LHS) China: Personal mortgage 3,000 5 300 10 2,500 4 250 8 2,000 1,500 500 3 2 1 1 150 50 6 4 2 2 2 4 New Personal Mortgages (LHS) YoY% (RHS) New Personal Mortgages (LHS) 5
Industry Report China Property 1 APRIL 2018 Major property developers New contracts sales and YoY growth Source: Companies, HKEx, Dagong Research 6
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