China Properties: Forget Policy Worries; Pick the Key Names

- Strong sales volume rebound in Aug fully expected — "Transaction volumes in the primary market show an expected strong rebound in Aug. The 15 key cities we tracked in China posted an average 42% MoM increase in volume. ASP also recorded 4% monthly growth. Beijing, Hangzhou and Shenzhen were major contributors to the price rise; ASP in other cities remained flattish/ slightly up."
- Market fears of new measures — "Many investors believe the meaningful rebound in volume without a robust price decline may touch the nerves of the Central government and trigger another wave of measures to be rolled out soon. We do not rule out the chance of new policies being introduced and believe tightening would be essential for a more sustainable long-term growth for the sector."
- Don’t over-react even as the policies are unveiled — "In our view, after the introduction of powerful measures in mid April, the measures available now are really limited. In our view, property tax, restriction on pre-sales proceeds and LAT settlement could be potential measures, but the impact may not be as significant as thought, given the strength of demand. Moreover, in contrast to early 2010, when the policy impact was huge, given the policy switch from supportive in 2009's to early 2010's tough tightening, this time we already have tough tightening. The impact from additional measures may not that that significant. Leading developers that can operate effectively even in the tightening period could emerge as market consolidators and enjoy enlarging their market share."
- It’s time for govt to reassess the overall policy direction — "We believe developers are more cooperative in this round of tightening by staying low-profile and launching projects with lower prices. Many of them are also involved in the government's social welfare housing projects. Now, it’s a critical time for government to reassess its policy direction and the reasons for the market’s prosperity, which is not mainly caused by developers. In our view, further tightening measures may still be ineffective if the fundamental picture is not changed: 1) Ample liquidity, created by the government itself during the economic stimulus; 2) Huge wealth accumulation and the desire for anti-inflation investment vehicles of Mainland Chinese, and 3) Government being the largest taker in the property-profit cake."
- Stick to the big names — "We believe the current share price has factored in most of the bad news. In our view, we should not pay too much attention to policy. The sector is in tough tightening mode already and the impact from potential new measures may not be as significant as thought. We suggest investors add to positions at the moment, but stick to the big names such as Shimao, Agile, China Vanke, COLI."


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