Stock debacle casts shadow over China home sales
Mainland property developers sold more flats last month but the recent stock tumble has added uncertainties to sales outlook for the second half, according to a research report by Jefferies Hong Kong.
“The market recovery continued in June, but uncertainties have arisen, especially after the stock market tumbled recently,” said the report co-written by analysts Venant Chiang, Parvani Zheng and Michael He.
Property transactions in 44 mainland cities in June was a strong 60 per cent year-on-year growth, the strongest this year.
Quanzhou took the lead with a 374 per cent year-on-year growth in property transactions while Wenzhou was up 281 per cent and sales in Shenzhen rose 228 per cent.
On a month-on-month basis, mainland developers were on average selling 15 per cent more flats in June than in May.
We believe a market recovery should only be moderate in 2H. The sharp rally in home sales during the pervious cycles may not be repeated
"Shenzhen Investment and Poly Hong Kong should have notched strong growth, thanks to the flourishing Shenzhen market,” the report said. “On average, we believe developers should have locked in 44 per cent of their annual target. Shenzhen Investments, Evergrande and Poly Hong Kong should lead the pack.”
However, the report noted that such strong growth trend may not be able to continue in the second half as price of some properties have increased in recent months after sales volume increased.
“The recent stock market weakness may also have a negative impact on sentiment, especially for upgradation demand,” the Jefferies report said. “Hence, we believe a market recovery should only be moderate in 2H. The sharp rally in home sales during the pervious cycles may not be repeated.”
Both the Shanghai and Shenzhen stock markets in the past two weeks tumbled by more than 20 per cent from the peak on June 12, technically sliding into bear market territory. The Shanghai market took yet another hit yesterday, with the key index dropping below 4,000 points for the first time in two and a half months.
Brokers believe the slump is due to a combination of factors such as profit taking and unwinding of positions by margin traders.
Beijing has brought in a number of measures to arrest the slide, including an interest rate cut at the weekend and allowing the national pension fund to invest 30 per cent of its assets in stocks. None of these has, however, managed to revive sentiments.
Jefferies believes developers will benefit from the regulatory approval to issue cheap on-shore corporate bonds.
Evergrande, Longfor and R&F have been green-lighted by the China Securities Regulatory Commission to issue bonds to tap funds. Sino Ocean and Sunac are expected to get the clearance as well.
Domestic bond issues by developers offer coupons of 5.5 to 6 per cent. Since December, mainland developers have raised a total of 36.8 billion yuan through various types of corporate bonds.
“We believe the capital structure of developers should broadly improve, given the low cost of onshore bonds,” the report said.
