Price cap policies may see some adjustments as higher land cost projects enter the market. On the back of two-and-a-half years of restrictive measures to keep home prices stable and under control, the property price index has been relatively stable with most cities recording gradual increases in property prices. In April, residential ASP in 67 of the 70 sampled cities tracked by the National Bureau of Statistics (NBS) saw further m-o-m increases, particularly in Tier 1 and 2 cities. Foshan, Suzhou, Dalian and Nanning were added to the warning list by the Ministry of Housing and Urban-Rural Development (MOHURD) to urge local governments to take appropriate actions given the continued rise in residential ASPs over the past three months. However, given that land prices have increased faster than property prices in the past two years, local governments may allow for some increases in selling prices of newly launched projects for developers to maintain some level of profitability during the process of maintaining a stable overall average price for the city.
Residential Real Estate (China)
Local governments starting to loosen up policies to maintain volume growth while keeping property prices under control. After two years of escalated tightening measures, residential property sales by value increased by 14.7% y-o-y in 2018 with GFA sold higher by 2.2%. In 1Q19, property sales by value grew 7.5% y-o-y, while gross floor area (GFA) sold dropped by 2.5%. Despite their reiterated policy aim to keep local property markets and prices under tight control, we have seen some local governments started to fine-tune their local policies - increasingly in the form of relaxing existing home purchasing restrictions and mortgage rates – to sustain transaction volume.
Better financing availability at lower costs than 4Q18. In 2018, developers’ average funding cost increased alongside tight liquidity both in the on- and off-shore bond markets. Gearing ratio was maintained in the 70-80% range. Developers’ net debt ratio improved slightly from 78% as at end-2017 to 74% by end-2018 with an average funding cost of 5.9%, higher than that in 2015 but lower than the cost in 2011, 2013 and 2014. Since 1Q19, offshore bond market has become much more accessible. China Securities Regulatory Commission (CSRC) approvals are not too difficult to obtain either. Listed developers we checked with generally reported that development loans and mortgages are granted by banks at ordinary speeds at present.
Key Industry Trends
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Companies We Cover
China Fortune Land*
China Jinmao Hldgs
China South City*
China Vanke 'A'
China Vanke 'H’
Shui On Land
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