HSBC visits Shanghai and Hangzhou property markets: supply determines the pace of sales, while completed-home sales reform has limited near-term impact
The residential markets in Shanghai and Hangzhou have improved since HSBC’s first-quarter visit, but new-home sales have slowed from their spring peak. High-quality, differentiated projects continue to sell relatively quickly, while concentrated supply has slowed sales of luxury homes; Greentown says the reform had a smaller-than-expected impact on sales from September to October.
Original source：The Hongkong and Shanghai Banking Corporation LimitedFirst published on Unhidea：Original source date：
Key takeaway
HSBC believes differences in project sales across the Shanghai and Hangzhou property markets are driven mainly by the quality and quantity of supply, while the completed-home sales reform has had a limited effect on recent sales. Developers nevertheless still face pressure to recover cash.
Why do project sales still vary after the property market has improved?
HSBC visited residential projects in Shanghai and Hangzhou from 19 October to the 21st and found that the market had gradually improved since its previous visit in the first quarter. However, primary-home sales momentum has slowed from the seasonal peak in March to April, and some luxury projects began using agents to sell homes in the second half of the year.
Better-performing projects often combine good product quality, efficient use of space, limited nearby new-home supply or differentiated positioning. Developers are also reducing the size of each launch batch to maintain higher sell-through rates.
Conversely, concentrated supply of luxury homes priced at 30 million to 40 million yuan in total has given buyers more choice and weighed on sales. HSBC says home prices are generally stable and expects subsequent new launches affected by the completed-home sales reform to be priced slightly higher.
How much does the completed-home sales reform affect developers?
Greentown says homebuyers’ initial wait-and-see attitude toward the “828” policy reform has eased. The reform had an insignificant impact on its sales from September to October, and the impact was smaller than the company had previously expected.
The company is promoting sales through discounts on parking spaces and management fees, among other measures, and encouraging buyers to make down payments of 40% to 50%. How the policy on regulated accounts will be implemented remains unclear.
Funding arrangements remain a constraint. Greentown is more cautious in acquiring land, prioritising smaller, low-density projects and increasing joint ventures to ease cash-flow pressure; HSBC has also factored the cash-flow delays caused by the completed-home sales reform into its valuation of China Overseas Land & Investment.
What supports the secondary-home market?
PTI believes the primary and secondary housing markets have diverged: demand for new luxury homes remains stable, while some mass-market projects near the outer ring road where supply conditions have improved are selling strongly. In the secondary market, competition from new homes with more efficient use of space has brought the adjustment in existing-home prices largely to completion.
PTI says monthly transaction volumes for existing homes remain high, with homes priced below 3 million yuan accounting for a relatively large share. Supporting factors include rental yields above 2%, potential appreciation from urban renewal and possible price support from government purchases of older, small existing homes.
Which companies does HSBC favour, and why?
HSBC favours China Resources Land and China Overseas Land & Investment because both have strong financing channels, sound finances and a presence in core cities. The bank rates both Buy, with target prices of 38.30 Hong Kong dollars and 16.20 Hong Kong dollars, respectively.
HSBC also rates KE Holdings Buy, believing it could benefit from more active secondary-home transactions. Its target price for the US dollar-listed shares is 23.50 US dollars.
PTI also believes a cooling land market could allow smaller unlisted state-owned enterprises to replenish their high-quality land banks, so the opportunities arising from the reform may not necessarily be confined to leading developers.
