China - Housing 06 (Nov 21 - Dec 26)

[behappyalways]

China's homeowners living in unfinished apartments – BBC News
https://m.youtube.com/watch?v=MelnXrhY3AU

[winston]

Developers rally on state support for onshore bonds

Property shares jumped yesterday after reports that Chinese regulators have instructed state-owned China Bond Insurance to provide guarantees for onshore bond issuance by a few developers including Longfor (0960) and CIFI (0884).

Two of the sources said Longfor has already sold three-year and five-year medium term notes totalling up to 1.5 billion yuan (HK$1.73 billion) with a guarantee from China Bond Insurance.

Its report said policymakers had drawn up a list of half a dozen developers regarded as financially stronger, including Country Garden (2007), whose bond issues would receive guarantees.

Shares of Longfor, CIFI closed up more than 12 percent in Hong Kong while Country Garden rose 9 percent.

The decline in the yuan came as China's top economic planner said it would plan more polices to stabilize growth and roll them out if needed as economists and state media calling for additional stimulus.

The National Development and Reform Commission will "strengthen pre-emptive policy research, and introduce and implement policies from reserve in a timely manner as appropriate," Yuan Da, an official from the commission, said yesterday at a press conference. He didn't elaborate on what kind of polices the commission is considering.

And the Securities Times said that the People's Bank of China's surprise interest rate cuts may be the first in a series of policies to stabilize growth.

Source: The Standard

https://www.thestandard.com.hk/section- ... hore-bonds

[winston]

Property - Overall
A positive move but more is needed

Potential moves to assist developers in raising onshore debts may be helpful
but we think regulators need to do more to solve sectorial liquidity issues.

We think selected developers should be able to raise sufficient funds this
time as they are guaranteed by the regulator and underwritten by sponsors.

We expect market sentiment to turn less cautious on this positive newsflow.

Longfor, CIFI and Country Garden, are likely beneficiaries and our preferred
names. We also like state-owned developers, CR Land and COLI.

Source: CIMB

https://rfs.cgs-cimb.com/api/download?f ... 3F803F5F55

[winston]

CN Policy Banks Plan to Offer RMB200B Special Loans to Developers: Wire

The People's Bank of China (PBOC) and the Ministry of Finance (MOF) propounded to provide special loans, in a scale of RMB200 billion, to real estate developers through policy banks such as China Development Bank (CDB) and Agricultural Development Bank of China (ADBC), Bloomberg cited sources.

The special loans are dedicated only to the housing projects which are sold but incomplete, in order to guarantee the delivery of the stalling projects to the homebuyers and amplify the financing support to the embattled developers.

Related News - JPM: Higher Profit Warning Risk for Seazen, CIFI, KWG, Agile, Powerlong, Times China, Yuzhou, R&F

Source: AAStocks Financial News

[winston]

How lack of a property tax left China open to a housing bubble

Local governments’ reliance on a hot property market to sell land and cheap, available credit have been blamed for the bubble, but other factors have been at play

Even a property tax as low as 0.5 to 1 per cent could have helped prevent the bubble that is disrupting China’s economy from forming

by Joe Zhang

Source: SCMP

https://www.scmp.com/comment/opinion/ar ... e=homepage

[behappyalways]

China's Top Developer Warns Property Crisis Has "Slid Rapidly Into Severe Depression"
https://www.zerohedge.com/markets/china ... is-worsens

[winston]

China cities roll out property measures

by Themis Qi

Developers will deliver homes gradually.

Financing will improve as more and more incentive measures are carried out.

40 major cities will offer 6.5 million homes to meet the housing demand of 200 million people by the end of 2025.

More than 30 cities will limit the compensation for owners of properties to be redeveloped by governments for home purchases in a bid to further boost the property market.

Some local governments are also encouraging state-owned enterprises to buy homes from private developers.

Source: The Standard

https://www.thestandard.com.hk/section- ... y-measures

[winston]

Property - Sales facing risks from lockdowns; policy to maintain status quo before October.

Sales saw a sharp deterioration in Chengdu/Dalian/Guiyang due to tighter COVID-19 restrictions.

However, the impact from this round of lockdowns will be smaller than that of May 22.

We expect the policy framework will remain unchanged before mid-October and CBIC guaranteed bonds, mild relaxation of demand side policy and Zhengzhou’s effort for home delivery might be the best news that can be expected during this period.

Maintain MARKET WEIGHT

Source: UOBKH

[winston]

Mainland developers rally amid hopes for more breaks

Guangzhou is to allow bigger reductions in home prices - up to 20 percent from 6 percent previously.

Beijing is wary of big price cuts as it does not want property prices to tumble or for the cuts to trigger protests from previous buyers.

Standard and Poor Global Ratings said the sector needs up to 800 billion yuan (HK$897.9 billion) to ensure distressed developers can finish presold homes.

Source: AP

https://www.thestandard.com.hk/section- ... ore-breaks

[winston]

China Property – Seeking alpha opportunities among likely-stronger survivors

The recently concluded 1H22 earnings season for the Chinese property sector painted a weak picture, with core net profit falling 28% (simple average) year-on-year (YoY), or 26% on a median basis for the 20 developers tracked.

Reasons for the weak showing include lower revenue recognition from development properties, rental concessions given to tenants of investment properties amid Covid-19 resurgence and pressure on average selling prices for development properties coupled with significant gross margin compression, which was down by a median 4.9 percentage points (ppt) YoY.

Given the weak results and the need to conserve cash, several developers either cut their dividends or scrapped interim dividends entirely.

The median net gearing ratio for this group of 20 developers also increased from 56% (as at 30 Jun 2021) to 60% (as at 30 Jun 2022).

For the property management services companies we track, average core net profit growth came in at 6% YoY and 21% on a median basis. While this was clearly much stronger compared to the developers, there are concerns over the increase in receivables of property management services companies, especially for those with distressed developers as their parent/sister company.

For the group of property management services companies tracked, we note that their receivables jumped 55% half-on-half (HoH) from end-Dec 2021 to end-1H22.

Given the liquidity crunch facing the Chinese property sector amid tighter financing conditions and a slump in developers’ contracted sales, some companies have turned to the equity markets for funding despite depressed valuations.

Major developers we tracked registered median contracted sales dips in Aug 2022 and 8M22 by 32% and 42% YoY, respectively.

The overall challenging environment surrounding the property sector has led to an increase in policy support over the past few months.

Besides the cutting of China’s 1-year and 5-year loan prime rate (LPR) by 5 basis points (bps) and 15bps in Aug 2022, respectively, and local government easing measures, the central government has also stepped in with supportive policies, such as the establishment of a CNY200b fund to ensure the timely delivery of stalled housing projects.

Although the reported amount appears small, it does send a positive signal of the government’s intention to quell homebuyers’ unrest and ensure stability in the property sector.

However, we believe it is also clear that the government does not intend to bail out individual developers, which would result in several distressed developers exiting the industry eventually.

This would in turn lead to consolidation within the property sector and we see room for firm market share gains by the state-owned enterprise (SOE) developers and high calibre privately-owned enterprise (POE) developers.

The MSCI China Real Estate Index is down 22.9% year-to-date (YTD) (total returns, as at 13 Sep 2022), underperforming the MSCI China Index’s -21.3% returns slightly during the same period.

Current forward price-to-earnings (P/E) multiple for the former has increased to 7.2x (as at 13 Sep 2022) due to the sector’s earnings cut, and this represents 1.6 standard deviations above the 5-year average (5.7x).

Given the overall challenging industry backdrop, coupled with an expensive P/E valuation for the MSCI China Real Estate Index, we remain cautious on the Chinese real estate sector, although we acknowledge that more significant easing policies by the Chinese government could provide a relief rally in share prices.

In such a scenario, we would take the chance to reduce exposure in our least preferred names, which include Country Garden Holdings (2007 HK), Shimao Services Holdings (873 HK) and A-Living Smart City Services (3319 HK).

On the other hand, while national residential property sales could face a structural annual decline in the in the years ahead due to demographics, we believe the overall scale of the industry is still significant, with an average CNY13.9t of residential buildings sold per year from 2017 to 2021.

Furthermore, the likelihood of several distressed developers exiting the industry could result in meaningful market share gains for the likely-stronger survivors, which can potentially offset the structural decline in annual sales, in our view.

Our overall preferred Chinese real estate picks, based on the thesis that the likely-stronger survivors are likely to deliver alpha over the medium-to-longer term given market share gains, are China Overseas Land & Investment [688 HK; FV: HKD25.14], China Resources Land [1109 HK; FV: HKD41.25], Longfor Group [960 HK; FV: HKD35.44] and China Resources Mixc Lifestyle Services [1209 HK; FV: HKD50.50].

Source: OCBC