NEWS ANALYSIS
Braving the uncertain China property market
Developers are still looking to expand there but analysts are advising caution
By UMA SHANKARI
(SINGAPORE) It is getting increasing difficult to get a sense of the state of China's residential property market.
Developers listed on the Singapore Exchange - both household Singaporean names and their China-based counterparts - continue to be bullish.
But analysts advise caution. There is also some speculation that another round of government tightening measures could be on the horizon as home prices in China continue to hold firm.
But for now, developers are still looking to expand in China. Last Thursday, City Developments said it has set up a new unit with some $300 million on hand to build up its presence in China.
Its fully-owned subsidiary, CDL China Limited, will target all segments of China's property market - the high-end, mid-tier and mass market residential markets as well as the commercial and hospitality sectors. So far, 12 first-tier and second-tier cities in China have been earmarked for investment.
'Going down the road, there is always a fear that the bubble in China will burst. I don't believe that it will burst that much,' said CityDev executive chairman Kwek Leng Beng during the company's Q2 results briefing.
His move comes after one of Singapore's biggest China proponents, CapitaLand, reiterated that it will continue to grow in China. The developer plans to set up a new business unit to build 'affordable' homes in China and Vietnam.
Developers are also going ahead with planned launches. CapitaLand said during its Q2 results briefing that launches were on track and selling prices will be maintained. The group's target, which is to launch 3,000 units on average a year, remains intact.
China-based Yanlord Land Group has also said it is looking to launch new projects and new phases of its existing projects in the second half of 2010.
But on the ground, many are watchful, and wary. Citigroup reported earlier this month that speculation on a new wave of tightening measures led to a 'mini sell-off'.
Caution returned to China's property sector early this month due to recent speculation that the government may introduce a new wave of tightening, the bank said. Talk was that the authorities will target development schedules, crack down on land hoarding and further tighten mortgage loans for third-unit purchase, Citigroup analysts wrote in an Aug 6 note.
In addition, it has been reported by the local press that China banks have been asked to stress-test for a 60 per cent home-price fall. All the news resulted in a small sell-off in the China property sector in early August - even though most of the news had not yet been made official.
The Citigroup analysts' view is that new tightening measures are unlikely. Instead, China's central government will focus on the implementation of existing tightening measures in H2, they believe.
The trepidation on the ground is caused by the fact that the home prices are not falling by much yet.
Property prices in China rose at a slower pace in July from the previous month as efforts to curb speculative investment in the real estate sector started to take effect. Home prices in 70 major cities rose 10.3 per cent year-on-year in July, the National Bureau of Statistics said last Tuesday, down from 11.4 per cent in June.
The figure marked the third straight month of slowing year-on-year growth in prices after Beijing announced a slew of measures from January to April 2010 to prevent the real estate sector from overheating.
But prices are not easing much on a month-on-month basis. Despite all the measures, property prices only eased 0.1 per cent month-on-month in June 10 - marking the first time that prices fell since February 2009. And prices in July were unchanged from June, according to the statistics bureau.
But despite the riskier operating environment (as compared to Singapore), developers are heading in because 'there is no denying that China will one day become the largest economy in the world', as Mr Kwek put it.
For CapitaLand, its China residential properties continued to provide support to its financials for H1 and Q2 2010. The developer sold over 1,100 units in the first six months of the year.
But DMG & Partners Research analyst Brandon Lee pointed out that CapitaLand's sales volume in China fell to 382 units in Q2 2010 (from 801 units in Q1).
'For H2 2010, we expect this trend to persist, suggesting subdued take-up for upcoming launches in Hangzhou, Kunshan and Shanghai,' Mr Lee said.
A key project to watch out for next is CapitaLand's luxury Paragon development at Shanghai Luwan. The company said during its recent Q2 results briefing that pre-launch interest in the project is extremely strong. It hopes to launch 116 units in Q1 2011.
'While management is optimistic on the eventual pricing, citing the 100,000-150,000 yuan (S$20,061-S$30,092) per square metres achieved for comparable projects, we remain mindful of lingering policy risks in the region,' wrote CIMB analyst Donald Chua about the project in an August 5 note.
Leading and 'brand-name' developers are still seeing decent sales in China in Q2 and Q3 on the back of better product quality and more flexible pricing strategies. Their profitability is likely to be respectable even if they cut prices going forward.
But to play it safe, some analysts are now advising investors to focus their attention on commercial properties and players instead.
Copyright © 2010 Singapore Press Holdings Ltd. All rights reserved.
What lies ahead? There is some speculation that another round of govt tightening measures could be on the horizon as home prices in China continue to hold firm
Posts
No comments:
Post a Comment