China Property Investment Update:Golden Season ends with a clearer picture of the property market

China’s property market is gradually heating up underthe watchful eye of the regulator according to the salesmanagers we spoke with on our site visits in Shanghai,Hangzhou, Suzhou, Xi’an, Fuzhou, Chengdu and Beijingwhere we met with SUNAC (1918 HK, Outperform),Greentown China (3900 HK, Outperform) andSino-Ocean Land (3377 HK, Neutral). We learned that(1) developers will be aggressively pushing sales in thelast two months of the year, just as they did in October;(2) tightening mortgage lending has not discouragedsign-up sales; and (3) surging land prices have been animpediment to developers in tier-1 and -2 cities as costeffective land banking is now key to ensuring sufficientsaleable resources.

SUNAC managed to boost sales of its “Greentown-SUNAC JV platform” using stronger incentives andhigher commission rates for its sales managers. Wevisited the company’s flagship projects in the YRDregion and came away impressed by their quality. Thisshould translate to healthy sales and earnings next year.

In the meantime, we expect SUNAC to set a full-year2014F sales target of RMB60b and meet its 2013 targetin November.

Sino-Ocean Land’s commercial projects have generatedsteadily growing rental incomes. Its JVs with SwireProperty (962 HK, Not Rated) have been particularlyfruitful. The company is adding 200k sm of commercialspace each year towards a target of 2m sm by 2018F.

We expect Sino-Ocean Land’s saleable value for 2014Fto surge at least 30%, leading to a 30% higher salestarget of RMB45b for 2014F. We look for the developer’s2013 full-year sales target of RMB35b to be completedby the end of October.

Housing prices in the YRD region have been stable in2013F. We expect prices to pick up in 2014F, benefitingdevelopers with heavy exposure to key cities in theregion, notably Shanghai and Hangzhou. In contrast,commercial property supply in tier-2 and -3 cities is pilingup.

Policy alert. To our recollection, Chairman Xi Jing Ping’srecent speech on the property market is the first time atop party official has ever addressed the long-term pricecontrol mechanism emphasizing a market-orientedapproach. We favor the clear and stable tone set byChairman Xi and expect it to trigger a recovery within thesector.