From Citi:
Best of times vs. worst of times: In a stabilized but polarized overall property market, we see the “best of times” ahead for quality names as consolidators that are progressing well with their business model transformations (asset-light with high turnover, best city exposures and/or diversified income streams). By contrast, the “worst of times” are crowding in for property companies with an old business model – asset-heavy with high gearing and low asset turnover. Over the longer run, sector consolidators will evolve into a top-tier of quality property companies with mature business models, sustainable growth and lower exposure to market cyclicality.
Sales picking up strongly in Tier 1/2 cities post recent aggressive policy loosening: Government policy could continue to be stimulative until the physical market shows more signs of improved REI and GFA starts – eventually ensuring a soft landing for the sector. We revise up our assumptions for 2015: i) Tier 1/2 cities’ sales value up 9.8%yoy (from previous up 2%), ASP up 4.1%yoy; ii) National sales value up 1.1%yoy (from previous down 10%) on higher ASP assumption while we stay bearish on Tier 3/4 cities (sales value down 8.0%yoy, ASP down 1.1%yoy).
Somewhat more bullish than my outlook but a solid base case. Recall that city tiers 3 and 4 make up 75% of Chinese construction so this is still a very bearish outcome for Australian exports: