China Property:Weekly Tracker,Divergent trend in property sales
New home sales dropped 21% WoW in 26 major cities (Hefei and Tianjin notavailable) for the week ended November 6, according to Soufun data. Tier 1-3cities recorded WoW falls of -18%, -22% and -23%, respectively. Since October 9,sales in restricted cities have fallen by 32% YoY vs +26% YoY in unrestrictedcities. We think untightened Yangtze Region cities still held up well whiletightening cities experienced significant YoY sales drops, e.g. Wenzhou, Yangzhouand Ningbo recorded +64% YoY, +49% YoY and 43% YoY, respectively, since Oct9 vs Xiamen, Dongguan, Suzhou, Jinan and Shanghai at -75% YoY, -70% YoY, -67%YoY, -53% YoY and 51% YoY, respectively.
Secondary sales were down 10% WoW in 12 major cities for the week endedNovember 6, according to Wind data. Secondary sales in Beijing remain on risingtrend at 81% YoY, while Shenzhen recorded the 30th consecutive YoY decline at-9% last week. Sellers in Shenzhen secondary market have been more willing tocut prices since October. Centaline's secondary listing ASP index has droppedfrom 39.8% for the week ended October 3 to 28.1% for the week ended October31. When the index falls below 50%, it means more secondary home sellers arelowering prices than raising them. This leads to a -3% MoM decline in monthlysecondary ASP in Shenzhen (Exhibit 1).
Developers’ October sales were stronger than expected amid tightening: As ofNovember 7, nineteen of our tracked companies have reported their October2016 contract sales numbers. Despite the heavier tightening measures, their salesresults remained strong at +1% MoM and +61% YoY, vs +63% YoY in September2016. We think the strong October sales reflect part of the transactions presecuredin late September and the front-loaded demand pre-tightening. Lookingat 4Q16, we expect developers with higher exposure to lower-tier cities tooutperform, given the market slowdown since late October, as per Soufun data.
We reiterate our OW ratings on Agile and COGO given their 86% and 63% GAVexposure to lower tier cities. We think the momentum of low mortgage rate andsupportive policy can still support lower tier cities till year end.
COLI NDR Takeaways: We recently hosted a two day roadshow for COLI. COLImanagement is confident of achieving >30% gross margin in 2H16-2017 due to: 1)higher ASP of re-branded CITIC projects; 2) lower funding cost given therepayment of ~50% total loan and look to refinance the remainder by the end of2016. Combined with its recent disposal of lower tier projects, we think investors'margin concerns during COLI's 1H16 results announcement should be alleviated.