China - Housing 01 (May 08 - May 10)

[winston]

China quake to spur property sector consolidation


By Kirby Chien BEIJING, May 15 (Reuters) - The huge earthquake that radiated destruction from its epicentre in southeastern China on Monday will lead to further consolidation in a fragmented property sector, analysts predict, as safety concerns become paramount.

The worst tremor to hit the mainland in three decades toppled schools and crumpled homes, with death toll estimates as high as 50,000.

As investigators begin looking into claims that shoddy construction may have contributed to the high death toll, analysts say some smaller property firms might be forced to shut down.

"The earthquake will likely raise awareness of safety and accelerate the housing upgrade ...," Tong Tsang of Citigroup Global Markets, said in a research note.

China's property development companies are estimated to number more than 20,000, most provincial or local in scale, which have developed rapidly over the past two decades of rapid economic growth.

"Many of the smaller developers will be driven out," said Ashley Howlett, a partner with law firm Jones Day, who heads the Greater China construction practice.

Citigroup's Tsang said Hong Kong-based developers such as China Resources Land <1109.HK> and China Overseas Land & Investment <0688.HK> would benefit from any move toward larger, more established firms.

China launched a probe into the high number of schools that collapsed from the earthquake as parents have accused authorities of cutting costs and failing to meet safety standards, state media reported on Friday.

The quake destroyed some 216,000 structures in Sichuan, the epicentre of the quake, including 6,898 school buildings counted as of Wednesday, Xinhua said.

Citigroup said Yanlord Land Group and Sino Ocean Land <3377.HK> which were focused on developing high-quality projects in China's north and southeast near Shanghai.

Most large property developers focus on profit-making commercial buildings such as residential estates and office builders, and leave public projects for schools and government buildings to others.

"There is no money in building schools," said Kaven Tsang, a property analyst with Moody's Investors Service based in Hong Kong.

China's market reforms over the past three decades have created a thriving economy but have also spawned rampant official corruption and lack of commitment to quality standards.

[winston]

China property stocks prove attractive buys post quake - Citigroup

BEIJING (XFN-ASIA) - The recent selloff of China property stocks in reaction to the Sichuan earthquake pushed the sector to the low end of its historical net asset value discount range and now is the time to pick up high quality stocks, Citigroup said.

China's property market fundamentals remain strong and overall average selling prices are stable, the broker said, noting official figures that show a 10.1 pct year-on-year rise in April property prices, or a 0.2 pct rise month-on-month.

"Although there have been news reports (eg. Soufun) of a sharp decline in property transactions in 2008, data from the National Statistics Bureau show that in the first four months of 2008 transaction volumes were down only four pct but transaction value was up two pct," said Citigroup analyst Tony Tsang.

Rising land costs, limited land supply in prime areas, rising raw-material prices and higher safety standards in the wake of the quake are likely to increase costs, and hence property prices, in the medium to long term, Tsang said, and this will limit developers' willingness to cut prices.

As homebuyers have been waiting for developers to cut prices and developers have been holding on to new launches hoping for buyers to return to the market, transaction volumes have slowed.

"We believe that developers will win the game in Bohai, central and western China, while homebuyers will win - or are already winning - in southern China," said Tsang.

According to Citigroup, most cities in the Pearl River Delta region recorded disappointing sales so far this year. Shenzhen property prices remain under pressure while transaction volume in Guangzhou has been squeezed as home buyers hesitate to return to the market.

Tsang said Guangdong-focused developers could face downward earnings revisions if such weakness persists through the second quarter.

Citigroup highlighted Guangzhou R&F, Agile, Hopson and Shenzhen Investment as southern developers with weaker financial positions and lower 2008 locked-in sales.

It sees 60 pct of developers' estimated revenues locked in, reducing the chances of price cuts.

"As at early May 2008, the China property stocks under our coverage have secured 80 bln - 85 bln yuan pre-sales, which can be recognized in 2008E, representing an average lock-in percentage of 60 pct of FY08E revenues," Tsang said.

Citigroup said big-cap nationwide players such as China Overseas Land & Investment and China Resources Land are now at attractive valuations.

The broker also tagged Sino Ocean Land and Yanlord as good buys for their exposure to the Bohai and Yangtze River Delta regions, while Franshion and Kerry Properties are good commercial plays.

[winston]

STOCK ALERT - China property firms surge in Hong Kong on policy hopes
Xinhua Newsfeed

HONG KONG (XFN-ASIA) - Shares of China property firms listed in Hong Kong were sharply higher on hopes that Beijing may take steps to address liquidity problems faced by many developers.

At 11:36 am, Shimao Property was up 0.72 hkd or 8.3 pct at 9.39, China Overseas Land & Investment was up 0.9 hkd or 7.76 pct at 12.5, China Resources Land gained 0.8 hkd or 7.84 pct at 11.0 and Agile Property was up 0.55 hkd or 7.62 pct at 7.77.

Mainland media reported that officials from China's Ministry of Housing and Urban-Rural Development and the central bank have met with property developers recently to discuss matters related to the property market.

Analysts said the central government may be studying measures to address liquidity problems faced by many developers, amid worries over the survival of smaller players.

[winston]

WEN WEI PO

-- About 300,000 homeowners in Shenzhen, including many from Hong Kong, are in negative equity given the sharp falls in property values there.

[winston]

Doubts build on China property stocks surge
Alfred Liu
Monday, July 14, 2008

China property stocks surged last week due to a possible relaxation of mainland tightening measures, but analyts remain doubtful whether the rally is sustainable.

Shares in Agile Property (3383) jumped 5.84 percent on Friday to close at HK$8.15, while Guangzhou R&F Properties (2777) climbed 5.64 percent to HK$17.22, China Resources Land (1109) gained 4.28 percent to HK$12.18, and Shui On Land (0272) rose 2.45 percent to HK$6.68.

DBS Vickers said it rates China Resources and Shui On as "buy" with target prices of HK$20.90 and HK$9.10 respectively.

"China Resources Land and Shui On Land remain our top picks. Both have strong recurring income from investment properties, which in our view will help them weather the slowdown of the residential market," DBS Vickers analyst Carol Wu wrote in a research note.

But she added: "Property sales in major [mainland] cities continued to be sluggish last month. In all the cities that we tracked, transaction volume declined by 7 percent to 51 percent month-on-month, depending on cities. On a year- on-year basis, sales volume for those cities also registered declines in June."

Morgan Stanley maintained an "outperform" rating on Agile with a target price of HK$7.41 and left Country Garden as "equal-weight" with a target price of HK$4.53. Morgan Stanley said Agile is financially healthy, but Country Garden is conservative with its sell-through rate, given more contributions from projects in new markets. However, Citi said last week it downgraded Agile to "sell" from "buy" and slashed its target price to HK$6.74 from HK$11.38.

DBS Vickers said due to a lack of near-term catalyst, China property stock prices are expected to remain volatile in the short term.

[LenaHuat]

This pertains to Beijing properties:

北京上月房价仅上涨0.1% 涨幅为三年来最低值晨报讯 （记者韩娜）去年以来，本市房地产市场出现的销售低迷、居民持币观望态势，终于在今年6月的房价上有所体现。昨天，市统计局、国家统计局北京调查总队发布的上半年经济数据显示，6月，本市商品住宅销售价格比5月上涨了0.1%，涨幅达到2005年以来的最低值，而二手住宅销售价格更是出现了2005年以来的首次停涨。

房地产市场低迷

市统计局新闻发言人于秀琴指出，目前本市的房地产市场正处于调整期，投资增速放缓，销售市场连续两年低迷，今年上半年仅销售房屋3万套，与最高年份的10万套相差甚远。上半年全市的商品房均价仍在1.23万元至1.28万元之间，房价并没有出现有些媒体所说的大幅下降，下降的只是个别楼盘。

至于居民到底何时应该买房，于秀琴个人认为，房价的未来走势还相当复杂，这是开发商和购房者之间的一场“博弈”，居民现在的观望态度主要是由于高房价造成的，房价与收入比已经达到了15比1至16比1，也就是居民购一套房的价钱相当于15年到16年的收入。

[winston]

Financial Times: China’s banks told to tighten mortgages

“Chinese officials and government economists have warned domestic banks to tighten their mortgage lending criteria after the US government’s action to prop up Fannie Mae and Freddie Mac, the giant mortgage agencies.

“Liu Mingkang, China’s top banking regulator, has in recent days urged the country’s state-owned commercial banks to beware of risks in the real estate sector and ordered them to tighten loan approval processes.

“Others among China’s policy community have also begun to express concerns about the health of the country’s banks amid signs a once-booming property sector has begun to slow.

“Average house prices in China’s 70 largest cities were up 10.2% from a year earlier by the end of June, according to official figures. But sales volumes in important cities, including Shanghai, Beijing and Shenzhen, have fallen precipitously in recent months. Some analysts fear steep price falls ahead.

“Lending standards at Chinese banks are often much looser than in developed countries, in part because China is still in the early stages of building a credit rating system.

“China’s total stock of consumer debt remains far below of more developed economies. At the end of June, total mortgage lending in the Chinese banking sector amounted to Rmb3,350 billion or nearly 12% of gross domestic product.”

Source: Jamil Anderlini, Financial Times, July 23, 2008.

[winston]

Hong Kong developers eye falling mainland properties
By Alison Leung Reuters

HONG KONG: Hong Kong's deep-pocketed property developers appear ready to strike lower-cost deals in mainland China as a clampdown on bank lending and weak stock markets hurts their rivals there.

With their home market slowing, Hong Kong developers like Sun Hung Kai Properties, Henderson Land, Sino Land and Hang Lung Properties are stepping up mainland investments.

Because Chinese developers are suffering government efforts to cool the property market, Henderson Land has found itself the only bidder for auctioned land, buying a plot in Nanjing last month at the set price. Last year, the local government received as much as four times what it asked.

"It's so much easier to buy land now," said Henderson's executive director, John Yip.

Beijing has restricted loans for construction, required developers to build quickly or lose their land, and imposed a tax on land price appreciation. Such measures have had a mixed effect in a country where about eight million people migrate to cities each year from the countryside and where average prices are still rising; they were up 8.2 percent in June from a year earlier.

But the measures have hit a few markets hard, especially in the southern mainland cities of Shenzhen and Guangzhou, both of which are near Hong Kong. There, speculation was rife as a stock market boom fed into property prices. Now the process is in reverse, with the Shanghai Composite index having fallen by almost half this year, compared with an 18 percent decline in Hong Kong's main index, the Hang Seng.

"Stock prices have fallen so much that people can't make any profit," said Zhang Haitian, a 36-year-old homemaker in Shenzhen. "Who has the money to buy apartments now?"

Housing prices in some areas of Shenzhen have dropped 20 percent since January. The malaise could spread, with Nomura analysts forecasting that residential prices across China will decline 5 percent to 20 percent through the first half of 2009.

Land prices are likely to fall as thousands of local developers are squeezed by the credit controls, and many will be forced to sell at lower prices to survive.

"The smaller companies that are no longer able to raise money are having the most difficulty," said Michael Kibaner, the head of research at Jones Lang LaSalle in Shanghai. "Some of the Hong Kong companies are fairly well positioned to be taking advantage of these market opportunities. We've seen some of them getting into picking up land or distressed assets at very attractive prices."

Long-term hunger for new homes still appears strong, Kibaner said, with only 15 percent of total demand for housing satisfied by the rapid building in the last five years.

For Hong Kong developers, the main rivals for assets in the mainland are now private equity property funds run by companies like Morgan Stanley, ING Real Estate and RREEF, Deutsche Bank's property investment unit.

For example, a Chinese property company, Agile Property, sold a 30 percent stake of a resort project worth nearly $3 billion on Hainan Island to Morgan Stanley this month.

Goldman Sachs analysts say they believe that Guangzhou R&F, a southern Chinese developer, may also have to sell interests at lower costs in some of its projects to ease financial pressures. Although Hong Kong developers are investing more in mainland cities, it will be some years before they see results.

"It could take many Hong Kong companies a few more years before they can see major profit contributions from the mainland," said Eva Lee of Macquarie. "It's not just about buying landbank but also managing the people there and knowing about the market."

But for investors, this could be a good time to jump in. Shares in Hong Kong blue chip property companies have fallen about 27 percent this year during a global stock sell-off and weakening consumer confidence.

Henderson Land is trading at a 29 percent discount to net asset value and Sun Hung Kai Properties is at a 15 percent discount, compared with historical average discounts of 15 percent and 3 percent.

[winston]

BROKER CALL China property market 'neutral' on slow sales/soft prices - JPMorgan

BEIJING (XFN-ASIA) - JPMorgan said it has a "neutral" rating on China's property sector but cut its earnings and net asset value estimates on almost all developers due to slow property sales in the first half and softening property prices.

It said that on average, it has revised down 2008 earnings per share (EPS) by 14 pct and 2009 by 22 pct and net asset value by 14 pct.

"We believe our earnings estimates cuts are conservative enough at the moment," JPMorgan said, adding that it may revise up or down its numbers depending on the progress of sales in the second half.

"We think property sales in July and August will continue to stay flat as was the case in May and June, but will pick up in September and October post Beijing Olympics," it said.

JPMorgan downgraded four developers to "neutral" from "overweight" including Agile, CC Land, Zhong An and Yanlord on slow sales and relatively demanding valuation. Shanghai Forte and Beijing Capital Land were downgraded to "underweight" from "neutral" due to their poor execution and potential earnings disappointment.

However large caps China Resources Land, China Overseas Land & Investment, China Vanke and Guangzhou R&F were maintained at "overweight" on their strong execution and diversification in terms of products and geographical exposure.

JPMorgan added that commercial landlords still offer diversification of housing price risks, with Shui On Land remaining its top pick in the sector.

However, JPMorgan said it is still upbeat on the long-term prospects of the China housing market.

"In a bear market, we believe we can separate the likely winners from the herd based on their contract sales performance, which is a good indicator of execution capability," it said.

[winston]

WEN WEI PO

-- Shenzhen property values have dropped 35 percent since March, according to Hong Kong real estate agency Land Power.

The company also said the number of flat purchases by Hong Kong buyers had dropped nearly 30 percent in the first half.