China Property Mortgage Survey : Surge in March ASPs to abate in April, alleviating pressure to tighten

Beijing has officially raised the down payment required for second-home loans from 60% to 70%. Other cities have kept things unchanged. However, should April ASPs turn out to be unacceptably high for policy makers there could be further tightening. The local government in Guangzhou has stated that it may raise the down payment required for second-home loans from 60% to 70% if ASPs for the month of April register an increase of over 2%. According to our survey results (see following page), mortgage applications in March surged because of seasonality and homebuyers eager to purchase ahead of anticipated tightening policies. We expect this trend to reverse in the coming weeks as local controlling policies were released in late March led by Beijing and Shanghai.

Many of the cities included in our survey have opted to keep lending policies towards their respective housing markets unchanged as they await instructions from the PBOC and CRBC. We expect ASPs that had been surging in March to lose momentum before the end of April, taking the pressure off city administrations to impose further tightening measures.

Action. Taking into account the overhangs on the sector, we advise investors to consider a pair-trade strategy for the space that hedges against sector-wide policy risk while still generating modest gains. Promising examples of long/short pairs include: long Greentown China (3900 HK, Outperform) and short Agile Property (3383 HK, Neutral); and long Shimao Property (813 HK, Outperform) and short Country Garden (2007 HK, Neutral). We also advise accumulating CR Land (1109 HK, Outperform) on any share price weakness in view of the developer’s stable income streams from commercial properties. Risk. A key downside risk to China’s property sector is that a surge in new home prices in key cities triggers further rounds of policy tightening.