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China property weekly

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  • 1. Asia Pacific Equity Research 18 October 2010 Corrected Note China property weekly Property sales for the week ending Oct 17, 2010 • Primary sales trend mixed for individual cities: Primary residential sales China rose 38% W/W to an average of 4,374 units/day in the eight cities we track. Property Sales trend were mixed with significant increase in Chengdu (+163% W/W) AC Ryan Li and Chongqing (+108% W/W) due to registrations from the Housing Fair, (852) 2800-8529 and Guangzhou (+38%) due to continuous sales at Asian Game City (~5K ryan.lh.li@jpmorgan.com units sold since launch); other cities recorded -66% to +30% W/W change Lucia Kwong, CFA in volume. We expect the effect of the home-purchase restrictions to be (852) 2800-8526 reflected in the weekly transaction data in the coming weeks and the lucia.yk.kwong@jpmorgan.com current level of transaction to not continue. Volume is now 76% above the Suzy Tian 2008-09 average level. (852) 2800 8552 • Restrictions on home-purchase spread to 13 cities over the last week: suzy.t.tian@jpmorgan.com Following the implementation of restriction on home-purchase (HPR) in J.P. Morgan Securities (Asia Pacific) Limited Shenzhen, Shanghai and Xiamen in the first week of October, another nine cities (Details shown in Table 6 and Table 7) also announced the city-level China developers’ share price index measures with slight deviations. Among all, Fuzhou is the strictest as they 1994=100 disallow more than one home-ownership by all families; Shenzhen and 400 Nanjing ranked second as they disallow more than two home-ownerships by 350 300 families with residency. Most other cities disallow families with no 250 residency and no one-year tax proof to purchase new-home with the 200 150 exception of Wenzhou, Haikou, Hangzhou, Tianjin and Sanya. Among the 100 key cities which most listed-developers are exposed to, Chengdu and 50 Chongqing are the only two which are still not subject to home-purchase 0 Jan-04 Feb-05 Apr-06 May-07 Jul-08 Aug-09 Oct-10 restrictions as of now. Source: Bloomberg, J.P. Morgan. • Implications of home-purchase restrictions: We tried to analyze the potential impact of the HPR by looking at the YTD transaction volume of Schedule for 2010 Autumn Housing Fair Cities Date Beijing and Shenzhen due to their similar buyers’ profile. Average Beijing Sep 16 - Sep 19 transaction volume for Shenzhen changed by -2% before and after May 1 as Shanghai Oct 3 - Oct 6 the fall in volume in May to July was offset by increase in Aug and Sept.; Tianjin Sep 21 - Sep 25 this compared with -37% drop in Beijing. We expect about 35% of volume Shenzhen Oct 1 - Oct 5 shrinkage was due to the HPR. Given that people expected the Chengdu Oct 1 - Oct 5 Chongqing Oct 14 - Oct 17 implementation of HPR starting end-Sept and front-ran some of the volume, Guangzhou Sep 17 - Sep 19 together with the implementation of HPR mostly in mid-Oct, we estimate Hangzhou Oct 17 - Oct 20 Oct's volume for the eight cities that we track to be most flattish or down Sources: Local newspapers (Soufun, Focus.cn). slightly M/M and expect a significant M/M drop in Nov's volume. Such a decrease in transaction volume will put pressure on home prices in the coming months, but could pick up again in early-2011 by our estimate. Moreover, as the HPR was implemented in most first and second-tier cities, liquidity could be channeled to cities without any restrictions. Since Aug/Sep sales have exceeded our estimates, the anticipated sales decline in coming months may not necessarily have impact on our earnings estimates. Table 1: Major new launches Project name City District ASP Rmb/sqm Developer(s) Date of launch Details 保利御樽苑 Shanghai Pudong 21,000 Poly Real Estate 16-Oct-10 Launched 232 units 万科城花新园 Shanghai Minhang 25,000 Vanke 16-Oct-10 Launched 116 units, 5 units remaining 合生·世界村 Beijing Tongzhou 10,000 Hopson 16-Oct-10 Launched 432 units Sources: Soufun, Focus.cn. See page 9 for analyst certification and important disclosures, including non-US analyst disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
  • 2. Ryan Li Asia Pacific Equity Research (852) 2800-8529 18 October 2010 ryan.lh.li@jpmorgan.com Table 2: Primary sales – average daily sales for the week ending W/W % Shen- W/W % Shang- W/W % Chong- W/W % Cheng- W/W % W/W % Hang- W/W % Guang- W/W % W/W % (Units sold) Beijing* Chg zhen Chg hai Chg qing Chg du Chg Tianjin Chg zhou* Chg zhou Chg Total Chg 4 wks ending Oct-09 450 -6% 195 106% 822 30% 979 52% 378 11% 354 -7% 329 10% 283 25% 3,792 22% Nov-09 512 14% 186 -5% 680 -17% 667 -32% 536 42% 390 10% 305 -7% 241 -15% 3,517 -7% Dec-09 540 5% 134 -28% 684 1% 718 8% 711 33% 430 10% 297 -3% 239 -1% 3,753 7% Jan-10 314 -42% 133 -1% 407 -40% 595 -17% 334 -53% 279 -35% 142 -52% 214 -11% 2,418 -36% Feb-10 223 -29% 39 -71% 206 -49% 434 -27% 154 -54% 131 -53% 49 -65% 127 -41% 1,363 -44% Mar-10 325 46% 84 117% 344 67% 604 39% 218 41% 265 103% 100 104% 180 42% 2,086 53% Apr-10 406 25% 132 58% 514 50% 1,031 71% 323 48% 379 43% 312 211% 202 12% 3,286 58% May-10 146 -64% 46 -65% 249 -52% 481 -53% 230 -29% 217 -43% 73 -77% 141 -30% 1,583 -52% Jun-10 95 -35% 62 35% 281 13% 440 -8% 165 -28% 154 -29% 71 -3% 115 -18% 1,382 -13% Jul-10 169 78% 55 -11% 363 30% 571 30% 125 -24% 177 15% 111 57% 141 22% 1,712 24% Aug-10 181 7% 89 62% 429 18% 682 19% 188 50% 209 18% 148 33% 203 44% 2,129 24% Sep-10 295 62% 160 80% 531 24% 813 19% 285 52% 274 31% 252 70% 365 80% 2,975 40% MTD 344 90% 213 139% 721 68% 995 46% 302 61% 406 94% 230 55% 743 267% 3,955 86% June-10 6/6/2010 85 -24% 62 2% 303 -7% 428 7% 126 -24% 160 -9% 61 11% 116 -36% 1,342 -9% 6/13/2010 124 46% 75 21% 277 -9% 453 6% 211 67% 169 5% 108 78% 107 -8% 1,524 14% 6/20/2010 53 -57% 53 -30% 212 -23% 349 -23% 110 -48% 143 -15% 53 -51% 88 -17% 1,061 -30% 6/27/2010 118 122% 58 11% 329 55% 531 52% 213 95% 144 0% 60 14% 149 69% 1,603 51% July-10 7/4/2010 213 81% 47 -20% 296 -10% 627 18% 133 -38% 167 16% 82 36% 187 26% 1,753 9% 7/11/2010 147 -31% 47 0% 298 1% 439 -30% 108 -19% 151 -10% 112 36% 108 -42% 1,410 -20% 7/18/2010 118 -20% 59 27% 358 20% 507 16% 97 -9% 173 14% 108 -4% 113 4% 1,532 9% 7/25/2010 116 -1% 56 -6% 433 21% 574 13% 131 34% 181 5% 127 18% 137 21% 1,754 14% Aug-10 8/1/2010 251 116% 67 20% 432 0% 710 24% 157 20% 213 18% 125 -1% 159 16% 2,113 20% 8/8/2010 187 -26% 73 9% 456 6% 608 -14% 156 0% 186 -12% 108 -14% 165 4% 1,940 -8% 8/15/2010 111 -40% 70 -4% 394 -14% 631 4% 182 17% 180 -3% 79 -26% 217 31% 1,864 -4% 8/22/2010 142 27% 120 72% 406 3% 753 19% 194 7% 250 38% 173 118% 235 8% 2,273 22% 8/29/2010 217 53% 116 -4% 456 12% 710 -6% 249 28% 217 -13% 255 47% 237 1% 2,456 8% Sep-10 9/5/2010 283 30% 122 5% 493 8% 738 4% 240 -4% 284 31% 195 -23% 286 20% 2,640 7% 9/12/2010 343 21% 153 26% 497 1% 696 -6% 263 10% 232 -18% 220 13% 412 44% 2,816 7% 9/19/2010 257 -25% 186 21% 586 18% 770 11% 321 22% 283 22% 323 47% 363 -12% 3,088 10% 9/26/2010 295 15% 181 -3% 546 -7% 1,049 36% 317 -1% 296 5% 272 -16% 401 11% 3,357 9% Oct-10 10/3/2010 473 60% 371 105% 939 72% 1,140 9% 273 -14% 442 49% 209 -23% 480 20% 4,326 29% 10/10/2010 243 -49% 200 -46% 658 -30% 599 -47% 174 -36% 415 -6% 212 1% 663 38% 3,164 -27% 10/17/2010 315 30% 68 -66% 568 -14% 1,248 108% 459 163% 361 -13% 268 26% 1,087 64% 4,374 38% % above 08-09 avg -15% -57% 4% 136% 46% 47% 63% 295% 76% Source: Beijing Online Trading Centre, Shanghai Online Trading Centre, Shenzhen Land Resources and Housing Management Bureau, Chengdu Housing Management Bureau, Chongqing Land Resources and Housing Management Bureau, Tianjin Land Resources and Housing Management Bureau, focus.cn. *Excluding economic/price cap housing; # Due to system upgrade, some sales may not be able to be properly registered during the week, sales figures might be distorted. 2
  • 3. Ryan Li Asia Pacific Equity Research (852) 2800-8529 18 October 2010 ryan.lh.li@jpmorgan.com Table 3: Secondary market– average daily transactions for the week ending Shenzhen Hangzhou W/W W/W % W/W % ASP W/W % W/W % W/W % Tianjin ASP W/W % W/W % ASP % Beijing Chg Shenzhen Chg (Rmb/sqm) Chg Chengdu Chg Tianjin Chg (Rmb/sqm) Chg Hangzhou Chg (Rmb/sqm) Chg 4 wks ending Oct-09 645 -29% 516 2% 5,513 -4% 164 18% 449 4% 5,983 2% 142 7% 16,939 6% Nov-09 998 55% 788 53% 5,797 5% 192 18% 731 63% 6,115 2% 175 23% 17,337 2% Dec-09 1,319 32% 1,149 46% 6,274 8% 246 28% 630 -14% 6,154 1% 158 -10% 17,359 0% Jan-10 510 -61% 635 -45% 5,901 -6% 160 -35% 302 -52% 6,533 6% 43 -73% 17,732 2% Feb-10 287 -44% 264 -58% 5,648 -4% 71 -56% 163 -46% 6,603 1% 26 -40% 17,171 -3% Mar-10 704 145% 399 51% 5,917 5% 135 91% 254 56% 5,562 -16% 117 352% 19,072 11% Apr-10 1,127 60% 501 25% 5,682 -4% 214 77% 441 74% 6,712 21% 147 26% 20,974 10% May-10 611 -46% 658 31% 5,896 4% 141 -37% 218 -51% 6,700 0% 38 -74% 19,920 -5% Jun-10 328 -46% 336 -49% 5,937 1% 129 -8% 222 2% 6,810 2% 35 -8% 19,933 0% Jul-10 340 4% 357 6% 5,639 -5% 100 -23% 207 -7% 6,828 0% 41 18% 20,362 2% Aug-10 391 15% 519 46% 5,714 1% 129 29% 232 12% 6,741 -1% 51 23% 20,269 0% Sep-10 448 15% 510 -2% 5,948 4% 133 3% 255 10% 6,863 2% 61 20% 20,468 1% MTD 477 22% 391 -25% 6,098 3% 130 1% 354 52% 6,997 4% 61 20% 20,415 1% Jun-10 6/6/2010 349 -10% 343 -32% 5,444 -11% 145 12% 156 -12% 6,763 -2% 38 4% 19,938 6% 6/13/2010 447 28% 364 6% 5,887 8% 138 -5% 216 38% 7,049 4% 37 -1% 19,435 -3% 6/20/2010 161 -64% 318 -13% 6,617 12% 107 -22% 65 -70% 6,679 -5% 26 -31% 20,765 7% 6/27/2010 356 121% 318 0% 5,799 -12% 127 18% 162 151% 6,750 1% 38 45% 19,594 -6% July-10 7/4/2010 379 7% 265 -17% 5,460 -6% 66 -48% 150 -7% 6,813 1% 36 -4% 19,433 -1% 7/11/2010 310 -18% 354 34% 5,659 4% 100 2% 151 1% 6,765 -1% 33 -10% 19,973 3% 7/18/2010 327 6% 413 17% 5,627 -1% 93 -7% 141 -7% 6,729 -1% 45 38% 21,245 6% 7/25/2010 343 5% 394 -4% 5,809 3% 109 18% 208 6% 7,004 4% 50 12% 20,798 -2% Aug-10 8/1/2010 396 15% 455 15% 6,014 4% 95 -13% 204 -2% 6,553 -6% 57 13% 19,675 -5% 8/8/2010 314 -21% 350 -23% 5,739 -5% 123 30% 220 8% 6,693 2% 46 -19% 19,412 -1% 8/15/2010 363 16% 431 23% 5,543 -3% 148 20% 222 1% 6,765 1% 51 11% 21,058 8% 8/22/2010 412 13% 362 -16% 5,442 -2% 139 -6% 246 11% 6,940 3% 45 -12% 20,443 -3% 8/29/2010 471 14% 487 35% 5,833 7% 139 0% 270 10% 6,757 -3% 54 19% 20,758 2% Sep-10 9/5/2010 496 5% 854 0% 6,147 5% 152 9% 266 -1% 6,901 2% 61 14% 19,854 -4% 9/12/2010 516 4% 396 -54% 6,605 7% 163 8% 281 6% 6,988 1% 72 17% 20,817 5% 9/19/2010 608 18% 437 10% 6,084 -8% 139 -15% 294 4% 7,053 1% 82 14% 21,423 3% 9/26/2010 461 -24% 312 -29% 6,126 1% 100 -28% 293 0% 7,123 1% 80 -3% 20,772 -3% Oct-10 10/3/2010 546 18% 755 142% 6,008 -2% 144 43% 344 18% 7,146 0% 63 -21% 19,838 -4% 10/10/2010 257 -53% 140 -82% 5,834 -3% 81 -44% 314 -9% 6,778 -5% 55 -12% 20,784 5% 10/17/2010 629 145% 233 67% 6,453 11% 166 105% 402 28% 7,067 4% 65 18% 20,623 -1% Source: Soufun, Focus, city real estate trading centers. 3
  • 4. Ryan Li Asia Pacific Equity Research (852) 2800-8529 18 October 2010 ryan.lh.li@jpmorgan.com Table 4: Monthly primary sales Million sqm Beijing Shanghai Hangzhou Guangzhou Shenzhen Chongqing Chengdu Tianjin Jan-08 0.91 1.53 0.20 0.35 0.27 1.13 0.57 0.43 Feb-08 0.39 0.72 0.09 0.23 0.06 0.53 0.32 0.21 Mar-08 0.66 1.84 0.16 0.38 0.19 0.79 0.63 0.53 Apr-08 0.65 1.41 0.20 0.40 0.33 0.89 0.69 0.47 May-08 0.91 1.72 0.30 0.39 0.38 1.25 0.52 0.51 Jun-08 1.00 1.41 0.19 0.67 0.30 0.73 0.41 0.49 Jul-08 0.71 1.19 0.18 0.61 0.26 1.05 0.37 0.40 Aug-08 0.41 1.01 0.13 0.61 0.28 0.57 0.44 0.32 Sep-08 0.74 0.99 0.17 0.51 0.34 0.87 0.46 0.33 Oct-08 0.79 0.86 0.13 0.36 0.34 1.23 0.41 0.43 Nov-08 0.81 1.03 0.17 0.54 0.36 1.01 0.46 0.49 Dec-08 0.81 1.56 0.19 0.49 0.71 1.10 0.55 0.42 Jan-09 0.73 0.81 0.13 0.46 0.52 0.70 0.54 0.29 Feb-09 0.92 1.22 0.17 0.47 0.36 1.41 0.85 0.57 Mar-09 1.69 2.31 0.40 0.64 0.69 1.83 0.92 1.24 Apr-09 2.12 2.57 0.69 0.83 0.79 2.26 1.02 1.08 May-09 1.98 2.69 1.08 0.67 0.76 1.78 1.15 1.28 Jun-09 2.00 2.66 1.36 0.72 0.66 1.68 0.67 1.16 Jul-09 2.06 2.68 0.61 1.26 0.55 1.75 0.96 1.34 Aug-09 1.69 2.40 0.84 1.26 0.39 1.73 0.92 1.42 Sep-09 1.67 2.04 0.65 0.91 0.33 2.05 0.96 1.22 Oct-09 1.63 2.44 0.61 1.05 0.50 2.97 1.05 1.09 Nov-09 1.89 2.19 0.56 0.43 0.47 1.91 1.45 1.24 Dec-09 2.03 2.63 0.71 0.89 0.64 2.41 1.50 1.31 Jan-10 1.28 1.20 0.18 0.58 0.36 1.66 0.30 0.86 Feb-10 0.76 0.60 0.09 0.52 0.09 1.18 0.40 0.37 Mar-10 1.15 1.26 0.25 0.62 0.26 1.98 0.69 0.89 Apr-10 1.46 1.44 0.41 0.54 0.29 2.59 0.78 1.08 May-10 0.63 0.73 0.07 0.55 0.12 1.20 0.58 0.63 Jun-10 0.53 0.88 0.06 0.54 0.15 1.36 0.44 0.50 Jul-10 0.65 1.07 0.19 0.38 0.14 1.49 0.35 0.63 Aug-10 0.79 1.40 0.32 0.41 0.26 1.89 0.54 0.71 Sep-10 1.18 1.63 0.41 0.74 0.42 2.30 0.72 0.84 M/M %Chg 49% 17% 29% 79% 61% 22% 33% 19% Y/Y % Chg -29% -20% -29% -19% 26% 12% -31% -31% YTD % Chg -43% -48% -62% -39% -59% -2% -40% -32% Source: Soufun, City real estate trading centres, J.P. Morgan estimates. Table 5: Supply outlook GFA available for Months of supply based Avg Take-up in past sale# Avg take-up in 9M10 on 9M10 sales 12 months Months of supply MM sqm MM sqm Sales/mthly take-up MM sqm Sales/mthly take-up Guangzhou 5.21 0.52 10.0 0.56 9.3 Shenzhen 2.56 0.24 10.6 0.30 8.7 Beijing 12.71 0.94 13.6 1.16 10.9 Shanghai 6.59 1.13 5.8 1.43 4.6 Hangzhou* 2.78 0.20 13.9 0.27 10.1 Chongqing 9.29 1.68 5.5 1.85 5.0 Chengdu^ 5.74 0.54 10.7 0.82 7.0 Source: City real estate trading center websites, J.P. Morgan estimates. #Defined as units with presale permits but not sold and unsold stocks. *Includes six major districts; excludes Yuhang and Xiaoshan. ^Includes six main districts only; districts such as Shuangliu, Pi'xian, Wenjiang, Xindu, etc. are excluded. 4
  • 5. Ryan Li Asia Pacific Equity Research (852) 2800-8529 18 October 2010 ryan.lh.li@jpmorgan.com Table 6: Summary of home-purchase restrictions (in ascending order of level of restrictions) With residency Without residency Family with Family with tax Family with tax Family with tax Family with Family with Family with Effective from Effective until NO tax payment proof & payment proof payment proof NO home- ONE home- TWO home- payment NO home- & ONE home- & TWO home- ownership ownership ownership proof ownership ownership ownership Wenzhou* ONE ONE ONE ONE ONE ONE ONE Oct 14, 2010 No mention Haikou ONE ONE ONE ONE ONE ONE ONE Oct 14, 2010 Dec 31, 2010 Hangzhou ONE ONE ONE ONE ONE ONE ONE Oct 11, 2010 Temporary Tianjin ONE ONE ONE ONE ONE ONE ONE Oct 13, 2010 Temporary Sanya ONE ONE ONE ONE ONE ONE ONE Oct 12, 2010 No mention Xiamen ONE ONE ONE NONE ONE ONE ONE Oct 01, 2010 Dec 31, 2010 Shanghai ONE ONE ONE NONE ONE ONE ONE Oct 07, 2010 Temporary Beijing ONE ONE ONE NONE ONE ONE ONE May 01, 2010 Temporary Ningbo ONE ONE ONE NONE ONE ONE ONE Oct 09, 2010 No mention Guangzhou** ONE ONE ONE NONE ONE ONE ONE Oct 15, 2010 No mention Nanjing TWO ONE NONE No mention TWO ONE NONE No mention Temporary Shenzhen TWO ONE NONE NONE ONE NONE NONE Oct 01, 2010 Temporary Fuzhou ONE NONE NONE NONE ONE NONE NONE Oct 10, 2010 Dec 31, 2010 * Wenzhou: Restrictions only apply to units launched between Jun 10, 2010 till Dec 31, 2010; there are currently no restriction on secondary home ** Guangzhou: In addition to the above, announcement measures also restricted home-ownership for citizen aged below 18 Keys: NONE: NO new-home purchase allowed ONE: At most ONE new-home purchase allowed TWO: At most TWO new-home purchases allowed Source: Soufun, focus.cn, sina, local government websites Table 7: Detailed summary of home-purchase restrictions (in ascending order of effective date) City Effective from Effective until Measures (1) each family with residency or tax proof can buy at most one new home Beijing May 01, 2010 Temporary (2) families without residency nor tax payment proof are not allowed to purchase home (1) families with residency are allowed to have ownership of at most two homes; Shenzhen Oct 01, 2010 Temporary (2) families with tax payment proof are allowed to have ownership of at most one home (3) families without residency nor tax payment proof are not allowed to purchase home (1) each family with residency or tax proof can buy at most one new home Xiamen Oct 01, 2010 Dec 31, 2010 (2) families without residency nor tax payment proof are not allowed to purchase home (1) each family with residency or tax proof can buy at most one new home Shanghai Oct 07, 2010 Temporary (2) families without residency nor tax payment proof are not allowed to purchase home (1) each family with residency or tax proof can buy at most one new home Ningbo Oct 09, 2010 No mention (2) families without residency nor tax payment proof are not allowed to purchase home (1) families with residency are allowed to have ownership of at most one home; Fuzhou Oct 10, 2010 Dec 31, 2010 (2) families with tax payment proof are allowed to have ownership of at most one home (3) families without residency nor tax payment proof are not allowed to purchase home Hangzhou Oct 11, 2010 Temporary each family with or without residency can buy at most one new home Sanya Oct 12, 2010 No mention each family with or without residency can buy at most one new home Tianjin Oct 13, 2010 Temporary each family with or without residency can buy at most one new home (1) each family with residency or tax proof can buy at most one new home of which sales was launched between Wenzhou Oct 14, 2010 No mention Jun 10, 2010 to Dec 31, 2010 Haikou Oct 14, 2010 Dec 31, 2010 each family with or without residency can buy at most one new home (1) each family with residency or tax proof can buy at most one new home Guangzhou Oct 15, 2010 No mention (2) families without residency nor tax payment proof are not allowed to purchase home (3) buyer of new home must be aged 18 or above Nanjing No mention Temporary no families can purchase a third home or above Sources: Soufun, focus.cn, sina, local government websites 5
  • 6. Ryan Li Asia Pacific Equity Research (852) 2800-8529 18 October 2010 ryan.lh.li@jpmorgan.com Figure 1: Policy chart JPM China property index (1994 = 100) Increase downpayment Rmb900 billion public Sale slock-up period 50% initial 2nd 400 requirement for 2nd home to 1.1x housing plan restored to five land prm home- PBoC rate years from two payment rqt buyers Enforce idle land years defined "11 penalty 350 108bps rate cut; measures" 9 RRR hikes in Reduction of CBRC Jan-Nov07 (from transaction tax on 27 rate cut and said no 9.0% to 13.5%) Stimulative resale of homes Forbid land sales 5.5% capital RRR cut + ease in 300 Stimulative measures from 3rd home through private gain tax on resi Cetnral govt eff negotiations after pty sold within 2 measures from mortgage local gov't Nov1 Aug 31; to take bk yrs of purchase land if set idle for 2 Enforcement of LAT Gov't issued 250 yrs; monthly reinforcement 15-point measures; payment limited to measures 5.5% tax on sales 50% household raised RRR for flat resale witihin income 5 yrs of purchase News 200 "8-point" measures; said CQ's Resale (flipping) of pty tax 27 bps rate uncompleted units approved loan-to-value ratio banned RRR hike "six" measures 150 raised to 70% for hike Min. capital rqt purhase of 2nd Rate hike lowered to 30% 70% land supply News property Mortgage rate hike Deed tax raised to (20% for ordinary on small-size & reported (5.31% to 5.51%); 3% for non- hse) from 35% pubic homes ease in 100 Shanghai raised ordinary housing Increase land use Ban IPO proceeds to raised 3rd home downpayment rqt to charges and buy land bank RRR restrictions on mortgage (7% to 30% resettlement foreign homebuying in 7.5%) compensation Beijing lifted; CQ Stimulative 27bps rate cut CBRC re-iterates 50 announced tax rebate measures 40% downpayment Foreign fund restriction from Chengdu Allow foreign companies to policy rqt for 2nd home followed by capital gain tax mortgage 27 bps rate hike 90/70% rule gov't register at provincial levels 0 Jan-04 May-04 Oct-04 Mar-05 Aug-05 Dec-05 May-06 Oct-06 Mar-07 Aug-07 Dec-07 May-08 Oct-08 Mar-09 Aug-09 Dec-09 May-10 Oct-10 Source: China government websites, Bloomberg, J.P. Morgan. 6
  • 7. Ryan Li Asia Pacific Equity Research (852) 2800-8529 18 October 2010 ryan.lh.li@jpmorgan.com Table 8: Chinese developers - contracted sales Rmb in billions 2010 Jun 10 Jul 10 Aug-10 Sep-10 YTD Company % YTD contract contract contract contract M/M Y/Y 10 sales achieved sales sales sales sales sales chg chg ASP target Rmb bn Rmb mn Rmb mn Rmb mn Rmb mn % % Rmb/sqm Rmb bn Agile 20.2 2,000 1,600 2,000 3,100 55% 48% 10,756 24.0 84% Beijing Capital Land 7.2 380 480 1,050 1,400 33% -21% 10,588 10.0 72% C C Land 4.7 385 488 722 1,266 75% 338% 7,439 3.5 133% China Vanke 71.4 8,770 8,440 11,990 14,200 18% 55% 11,871 80.0 89% China Overseas Land 40.1 5,289 4,311 4,375 6,758 54% 20% 11,159 50.0 80% Country Garden 21.8 1,500 2,100 3,100 3,400 10% 72% 5,409 30.0 73% Evergrande 35.6 4,796 5,081 4,440 5,100 15% 54% 6,248 50.0 71% Glorious 5.8 892 677 674 1,633 142% 71% 10,251 13.0 45% Greentown 35.9 3,100 2,600 3,400 7,100 109% -4% 21,653 54.0 66% Guangzhou R&F 21.7 1,412 3,092 3,059 3,629 19% 17% 12,481 30.0 72% KWG 9.3 600 600 1,100 1,100 0% 87% NA 10.0 93% Longfor 18.7 1,880 1,940 2,600 3,690 42% 42% NA 24.8 75% Poly (HK) 7.5 500 500 800 1,500 88% 17% 7,282 10.0 75% Shanghai Forte 12.7 3,579 988 1,854 2,254 22% 101% 13,298 14.5 88% Shimao 19.6 1,776 2,002 2,700 3,519 30% 12% 12,169 30.0 65% Source: Company reports and J.P. Morgan estimates. Table 9: China developers - Valuation summary End Price Market NAV Dis. to Core PER Div Yield P/B FY10E 15-Oct-10 cap Current NAV FY10E FY11E FY10E FY10E Gearing Rating Stock Code LC$ US$MM HK$ (%) (X) (X) (%) (X) (%) China Vanke - B shares OW 200002.SZ 10.94 15,790 10.00 9% 17.4 13.7 0.9% 2.4 47% China Overseas Land Investment OW 0688.HK 17.40 18,348 16.46 6% 13.7 14.3 1.7% 2.8 37% Poly (HK) N 0119.HK 8.95 4,161 11.97 -25% 29.4 17.2 0.5% 1.4 73% China Resources Land N 1109.HK 16.84 10,948 18.65 -10% 21.5 14.9 1.3% 2.2 43% Sino-Ocean Land N 3377.HK 5.73 4,168 10.08 -53% 14.3 10.7 2.7% 1.2 62% Beijing Capital Land N 2868.HK 3.12 829 6.63 -53% 12.2 16.3 4.4% 1.3 70% Greentown N 3900.HK 9.05 1,911 24.32 -63% 8.9 4.6 4.4% 1.2 196% Shanghai Forte N 2337.HK 2.40 783 8.36 -71% 7.3 5.6 3.4% 0.7 103% Shimao OW 0813.HK 14.06 6,433 21.16 -46% 13.8 10.5 2.7% 1.5 84% Shui On Land N 0272.HK 4.16 2,766 7.76 -46% 18.0 18.7 4.4% 0.8 76% Glorious Property OW 0845.HK 2.85 2,866 5.83 -51% 10.0 7.1 2.5% 1.5 90% Yanlord* OW YNLG.SI 1.79 2,507 3.00 -40% 12.1 10.5 0.8% 1.3 35% Guangzhou R&F OW 2777.HK 12.44 5,172 17.92 -31% 11.6 9.5 3.5% 1.9 83% Hopson UW 0754.HK 9.38 2,121 25.28 -63% 6.5 8.9 2.5% 0.5 52% KWG Property OW 1813.HK 6.53 2,438 9.53 -32% 12.5 9.0 2.0% 1.5 70% Agile Property OW 3383.HK 10.70 4,795 19.65 -46% 11.8 9.2 2.5% 1.8 52% Renhe Commercial OW 1387.HK 1.59 5,124 2.03 -22% 7.3 6.3 7.7% 2.4 -41% C C Land N 1224.HK 3.36 1,110 6.70 -50% NA 22.7 0.9% 0.7 -11% Sector average** -26% 15.1 12.1 2.1% 1.9 60% *Yanlord’s share price and NAV are in SGD; ** Excluding Vanke, Renhe and CCL Source: Company data, Bloomberg and J.P. Morgan estimates. 7
  • 8. Ryan Li Asia Pacific Equity Research (852) 2800-8529 18 October 2010 ryan.lh.li@jpmorgan.com Figure 2: China Property: NAV discount chart (ex Vanke) Figure 3: China Property: Forward P/E chart (ex Vanke) 60% X 40% 60 20% +2 Std dev 50 0% +2 Std dev +1 Std dev 40 -20% 30 +1 Std dev -40% -1 Std dev Long Term Avg: -27% 20 -60% Average = 17.3x -2 Std dev -80% 10 -100% -1 Std dev 0 May 03 Mar 04 Jan 05 Nov 05 Sep 06 Jul 07 May 08 Mar 09 Jan 10 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Source: Bloomberg , J.P. Morgan estimates, Company data. Source: Bloomberg, J.P. Morgan estimates, Company data. Figure 4: China Property - Forward P/BV (ex Vanke) x 6.0 5.0 +2 Stdev 4.0 +1 Stdev 3.0 2.0 Average = 2.3X -1 Stdev 1.0 -2 Stdev 0.0 03 04 05 06 07 08 09 10 Source: Bloomberg, J.P. Morgan estimates, Company data. 8
  • 9. Ryan Li Asia Pacific Equity Research (852) 2800-8529 18 October 2010 ryan.lh.li@jpmorgan.com Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. Important Disclosures Explanation of Equity Research Ratings and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] J.P. Morgan Cazenove’s UK Small/Mid-Cap dedicated research analysts use the same rating categories; however, each stock’s expected total return is compared to the expected total return of the FTSE All Share Index, not to those analysts’ coverage universe. A list of these analysts is available on request. The analyst or analyst’s team’s coverage universe is the sector and/or country shown on the cover of each publication. See below for the specific stocks in the certifying analyst(s) coverage universe. Coverage Universe: Ryan Li: C C Land (1224.HK), Hopson Development Holdings (0754.HK), KWG Property Holding Ltd. (1813.HK), Poly (HK) Investments Limited (0119.HK), Renhe Commercial Holdings (1387.HK) J.P. Morgan Equity Research Ratings Distribution, as of September 30, 2010 Overweight Neutral Underweight (buy) (hold) (sell) J.P. Morgan Global Equity Research 46% 43% 12% Coverage IB clients* 49% 45% 33% JPMS Equity Research Coverage 43% 48% 8% IB clients* 69% 60% 50% *Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Valuation and Risks: Please see the most recent company-specific research report for an analysis of valuation methodology and risks on any securities recommended herein. Research is available at http://www.morganmarkets.com , or you can contact the analyst named on the front of this note or your J.P. Morgan representative. Analysts’ Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues from, among other business units, Institutional Equities and Investment Banking. Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of non-US affiliates of JPMS, are not registered/qualified as research analysts under FINRA/NYSE rules, may not be associated persons of JPMS, and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account. Other Disclosures J.P. Morgan ("JPM") is the global brand name for J.P. Morgan Securities LLC ("JPMS") and its affiliates worldwide. J.P. Morgan Cazenove is a marketing name for the U.K. investment banking businesses and EMEA cash equities and equity research businesses of JPMorgan Chase & Co. and its subsidiaries. 9
  • 10. Ryan Li Asia Pacific Equity Research (852) 2800-8529 18 October 2010 ryan.lh.li@jpmorgan.com Options related research: If the information contained herein regards options related research, such information is available only to persons who have received the proper option risk disclosure documents. For a copy of the Option Clearing Corporation’s Characteristics and Risks of Standardized Options, please contact your J.P. Morgan Representative or visit the OCC’s website at http://www.optionsclearing.com/publications/risks/riskstoc.pdf. Legal Entities Disclosures U.S.: JPMS is a member of NYSE, FINRA and SIPC. J.P. Morgan Futures Inc. is a member of the NFA. JPMorgan Chase Bank, N.A. is a member of FDIC and is authorized and regulated in the UK by the Financial Services Authority. U.K.: J.P. Morgan Securities Ltd. (JPMSL) is a member of the London Stock Exchange and is authorized and regulated by the Financial Services Authority. Registered in England & Wales No. 2711006. 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