Beijing has expanded its property curbs in the last fewmonths following the “five new measures” announcedat the end of February to stabilize property prices inthe city. However, tight supply due to sluggishproperty new starts in 2012 and developers’reluctance to launch new projects will keep pushingup housing prices. This vicious cycle will only expandto other key cities if housing prices continue to soar.
The new measures imposed stricter requirements ofpresale permit applications. The governmenttightened the use of presold funds by developersduring the construction stage to protect buyers fromproject defaults and to curb housing prices, especiallyfor large units. As such, developers will see toughercash position, slower asset turnover and controlledprices.
Limited downside policy risks. We are familiar withthe property measures the Beijing government canroll out, so in other words, downside risks are certainand limited. After the recent 37 months of propertytightening since the housing purchase restrictionswere first introduced in Beijing in April 2010, themarket has become accustomed to ongoing propertycurbs, and we view current price levels have largelyfactored in policy uncertainties. As a result of variousprice caps and controlling measures, the uptrend inhousing prices in major cities will stabilize in 2H13.
Actions. Amid current uncertain macro environment,we advise investors to accumulate undervaluedproperty stocks on weakness, especially the namessupported by high growth momentum in eithersaleable resources in 2H13 or completed FY13 GFA,namely SUNAC (1918 HK, Outperform), Greentown(3900 HK, Outperform) Country Garden (2007 HK,Outperform) and Shimao (813 HK, Outperform). Weare looking for valuation recovery in the magnitude of20-25%, in light of the expected peak sales season in3Q13.
Risks. New property tax trials; slippage and delays innew launches in 3Q13 peak sales season, resulting insluggish contracted sales progress; new price curbson completed properties held for sales.
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