China - Housing 06 (Nov 21 - Dec 26)

[winston]

China Property Sector: FY21 results review: Could the worst be over?

A gloomy results season with earnings decline and tightened liquidity, as expected

Developers have offered limited growth guidance for this year amid ongoing market uncertainty

Short term rally may continue, but sustainability would require more signs on refinancing channels reopening and physical market recovery

Top picks - COGO (81 HK), Longfor (960 HK), CR Land (1109 HK), COLI (688 HK) and Yuexiu (123 HK)

Source: DBS

[winston]

China Property Sector: Taking a toll from COVID-19 resurgence

National sales fell by a deeper 29% as expected in Mar-22 upon COVID-19 resurgence and a high base

Unlikely to see meaningful rebound in April on the outspreading of COVID-19 into other parts of China

Short-term price rally may continue in anticipation of more policy supports ahead

Top picks – COGO (81 HK), Longfor (960 HK), CR Land (1109 HK), COLI (688 HK), and Yuexiu (123 HK)

Source: DBS

[winston]

Financing is eased for distressed developers

China's central bank has stepped up its support for several distressed developers by allowing banks and bad-debt managers to loosen restrictions on some loans to ease a cash crunch, according to people familiar with the matter.

The People's Bank of China held a meeting with about 20 major banks and asset-management firms last week to help resolve crises at a dozen large real estate firms including China Evergrande (3333), they said.

The central bank sought looser requirements on a range of financing, from lending for property acquisitions to extending maturities on debt, the people added.

The moves discussed at the PBOC meeting included looser acquisition financing requirements when target projects are in early development stages, said the people. In previous years, banks were told not to lend for less-developed housing projects, as regulators sought to curb excessive borrowing, local media reported at the time.

The central bank also guided financial institutions to extend borrowings already overdue if developers provide additional credit support such as pledging more assets, the people added. The PBOC also reiterated its support for struggling firms through real estate development loans, said the people.

Meanwhile, the State Council has issued a notice to encourage banks to cut interest rates and sacrifice profit in order to inject capital into the real economy.

Separately, China's biggest state-owned banks lowered rates on some deposits of consumers by 10 basis points in response to the government's call for help in backstopping the world's second-largest economy.

Source: Bloomberg

https://www.thestandard.com.hk/section- ... developers

[winston]

China Real Estate: <News Alert> A prolonged sales recovery triggers more policy loosening

Preliminary presales data of the key developers we track in Apr, posted m-o-m deterioration with a drop of c.20% from Mar, due to city lockdowns and weak market sentiment

Although local governments are stepping up easing policies, a slower construction progress may not allow sufficient new launches and on-and-off city lockdowns may disrupt market recovery. We believe that there is low possibility for developers to achieve its presales targets in 2022

Going ahead, the key issue to watch for is how the government will fine-tune its Zero-Covid policy to mitigate the damage caused to business activities

We suggest investors to stick with defensive plays. COLI (688 HK), COGO (81 HK), CR Land (1109 HK), Longfor (960 HK), and Yuexiu (123 HK) remain our top picks

Source: DBS

[winston]

PBOC pledges 'orderly' growth for real estate

China's central bank has pledged to maintain orderly growth for the property sector while continuing to monitor and control financial risks.

The China Banking and Insurance Regulatory Commission also echoed the PBOC's comments for orderly growth.

This came as the Shenzhen Stock Exchange said yesterday that it encouraged better-off developers to issue bonds to raise funds for its mergers and acquisitions.

Source: AP

https://www.thestandard.com.hk/section- ... eal-estate

[behappyalways]

China Bets The House On New Houses
https://www.zerohedge.com/economics/chi ... new-houses

[winston]

China lowers mortgage floor for first-time buyers

The minimum mortgage rate is reduced to 20 basis points below the corresponding tenors of loan prime rate.

Most mortgages are longer than five years and pegged to the five-year LPR - at 4.6 percent now - so the new floor is effectively 4.4 percent.

Home sales continued to plunge across major cities at the beginning of May, after combined sales by the top 100 developers halved in the first four months of the year.

Banks in more than 100 cities have cut mortgage rates by 20 to 60 basis points since March.

Dongguan, a town in China's southern Guangdong province, has allowed families with two or three children to buy an additional residential property.

Source: Bloomberg

https://www.thestandard.com.hk/section- ... ime-buyers

[winston]

China’s home sales, land purchases and housing prices, set new lows as property sector remains in the doldrums

In the first four months, property sales sank 29.5 per cent to 3.78 trillion yuan from a year earlier, the National Bureau of Statistics said

The weak data came as cities try to loosen curbs amid stagnation in the property market and the wider economy

by Lam Ka-sing

Source: SCMP

https://www.scmp.com/business/article/3 ... s-property

[winston]

Fitch: CN Developers' External Funding Remains Limited; Property Sales Expected to Erode Up to 30% This Yr

Fitch Ratings predicted the bank and non-bank funding for Chinese property developers to remain limited for the rest of 2022.

Due to the financial institutions' inclination towards risk aversion, the tepid property sales will hinder a recovery in internal funding and, in turn, a revival in external funding.

China's national property sales plummeted 30% YoY in 4M22 and 47% YoY in April. The rating agency forecast the figure to erode by 25-30% throughout this year.

Related News - Jefferies: Selected Developers' Bond Issue Not to Extend to Other Private Players; Top Picks CR Land, COLI, Longfor

Source: AAStocks Financial News

[winston]

China Property – Outlook remains challenging, but policy hopes rising

China’s physical real estate market remained under stress due to the impact from Covid-19 related lockdowns, a high base effect, and continued weak consumer sentiment.

The weak industry data points were also mirrored in the declines seen in the major Chinese developers’ contracted sales in Apr 2022 and 4M22.

Besides weak residential sales, we also expect some impact on developers’ retail rental income given the Covid-19 resurgence, as some forms of rental support such as concessions may have to be provided to retailers, while those developers with a larger proportion of gross turnover rents are likely to be more adversely impacted given a decline in retail sales.

From our channel checks, it appears that rental concessions have not yet been rolled out in a large scale manner, but more on a case-by-case basis.

Given the insipid market conditions, it was not surprising that we saw more policy easing measures being announced by the Chinese government to support the economy. This includes lowering the 5-year loans prime rate (LPR) by 15 basis points (bps) in May 2022 to 4.45%, which was more than expected.

Other easing measures include loosening home purchase restrictions (HPR) in some Chinese cities, easing resale restrictions, lowering downpayment ratios for first/second homes, and subsidies such as for talented people, graduates, first homebuyers etc. These policies have been rolled out on a city-by-city basis.

The Chinese property sector has outperformed the broader Chinese equity market year-to-date (YTD), with total returns of -13.3% for the MSCI China Real Estate Index (as at 27 May 2022), as compared to the MSCI China Index’s total returns of -19.9% during the same period.

The MSCI China Real Estate Index is trading at a forward price-to-earnings (P/E) multiple of 5.1x and forward price-to-book (P/B) multiple of 0.56x (as at 27 May 2022). This is 0.6 and 1.8 standard deviations (s.d.) below their respective 5-year averages of 5.8x and 0.95x.

Current forward dividend yield of 5.7% appears decent, but is at risk of further cuts, in our opinion, given our view that earnings could still see downward revisions. Furthermore, the forward dividend yield is 0.3 s.d. below the 5-year average of 6.0%.

Although we have started to see increasing signs of policy easing measures, including stronger messaging from top-down directives, we believe implementation remains critical to drive a broader sector recovery.

Should the inflection point be reached once the Covid-19 situation is brought under better control, we believe the higher beta names may outperform. That said, we prefer to stick with our selective stance of quality Chinese property players given uncertainties over the macroeconomic and industry backdrop.

Our overall preferred sector picks are Longfor Group [960 HK; FV: HKD50.76], China Overseas Land & Investment (COLI) [688 HK; FV: HKD28.76] and China Resources Land [1109 HK; FV: HKD44.60] for the developers, and Country Garden Services [6098 HK; FV: HKD54.94] and China Resources Mixc Lifestyle Services [1209 HK; FV: HKD51.80] for the property management services companies.

Higher beta names which investors with higher risk appetites can consider for potential alpha when the sector reaches an inflection point are CIFI Ever Sunshine Services [1995 HK; FV: HKD14.10], CIFI Holdings [884 HK; FV: HKD5.00] and China Jinmao [817 HK; FV: HKD3.40].

Source: OCBC