From Mac Bank:
While we are bullish on China property stocks, physical market recovery should be moderate (no V-shaped rebound) and differentiated. We expect continued improvement in the sales performance of smart developers in T1/2 cities but do not expect a free ride for those focusing on T3/4 cities. We also do not expect a strong positive impact on national real estate investment.
We had expected sales to improve towards the end of April and stimulus measures (instead of just relaxation) to happen soon. Our prediction came to pass with 16 developers reporting a 15% MoM improvement in sales in April, after an 88% MoM jump in March from February’s low base. We expect sales to improve further in May and June. However, YTD YoY growth was only -8% with only 22% of the year’s target achieved so far. We expect single-digit sales growth for the national market in 2015. Upside surprise should be driven by price increases in T1/2 cities and excess growth should not exceed 5 ppts.
Sanity checks. Low-tier cities (beyond top 40) accounted for 47% of sales by value and 63% by area. Their sales should remain flattish as credit loosening does not apply so much to their home buyers. T2/3 cities should experience volume improvement but price increases should only be single-digit. T1 cities have room for double-digit price appreciation this year but their developers may choose to launch more slowly in 2015 to capture better gross margin in 2016. As a result, while we believe developers can meet and beat their 2015 sales targets, they may not exceed by more than 10 ppts.
Remember that these are listed developers only which presumably have larger market shares in top tier cities. That is why the floor area estimates here shows higher proportions in top tiers than in RBA or IMF data.
