Govt policies guiding stable growth in recovering property market
Updated: 2010-01-01 07:41
(HK Edition)
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HONG KONG: Stocks of mainland developers have been weighed down recently by worries over new government measures aimed at cooling down the overheated property market. But analysts say the sell-off is actually providing good opportunities for smart investors to buy in.
The prospects for the mainland property sector remain promising, as the Central Government has no intention of crashing the property market, despite its having recently unveiled some measures to prevent the sector from overheating, analysts generally believe.
Rather, what the government is trying to do is to keep the real estate market healthy, said an analyst.
This underlying intention is clearly evidenced by the fact that all policy adjustments rolled out so far are mainly intended to increase housing supply rather than to dampen demand, said Danielle Wang, a property analyst at DBS Vickers.
"The measures are intended to keep the property market healthy and encourage consolidation in the sector," she said.
Among the measures, developers are required to pay 50 percent of their land prices immediately upon purchase, against only a 20-30 percent down payment required previously. They also need to settle the balance within one year from now on, whereas they were previously allowed two or more years.
As another measure, local governments are being told to limit the size of each individual development site put up for auction.
All these measures are meant to discourage developers from hoarding land, a common practice now among many developers who are doing so in the hope of reaping huge profits from land value appreciation.
Meanwhile, the Central Government also instructed local authorities to "effectively" boost land supply.
While clamping down on land hoarding activity, the government encourages developers to build more low-cost homes to meet growing demand.
"The Central Government has made it very clear that what it really intends to do is to make sure the real estate market will grow and develop in a sustainable way," said Simon Lam, research director at Christfund Securities Ltd.
Maintaining sustainable growth in the housing sector serves the country's long-term policy of shifting its economic growth model, i.e., from heavily export-dependent to strongly consumption-driven.
Consistent and robust housing demand will boost economic activities not only in the construction sector, but also in many other sectors, such as the cement manufacturing sector, the appliance manufacturing sector and the home decoration sector, all of which will contribute significantly to employment and economic growth.
As part of the economic restructuring, the Central Government is stepping up its urbanization drive, with a target of raising the urbanization level to 55 percent by 2020 from the current 46 percent, which is very low compared with a 66.8 percent in Japan, 90.1 percent in the UK, 89.1 percent in Australia and 82.3 percent in the US currently.
Urbanization will be a key fundamental demand driver for the property sector on the mainland, Wee Liat Lee, a property analyst at Nomura International (Hong Kong) Ltd, said in a research report.
"At this early growth stage, the mainland's property sector still has plenty of strong untapped fundamental demand to support growth in the sector," he said.
The current rate of a 1 percentage point increase in the mainland's urbanization level per annum implies that 13.3 million people will need new houses in urban areas each year. This translates into around 4.19 million units of new houses or 377 million square meters of floor space needed each year, according to Nomura's estimate.
With the huge fundamental demand untapped, the property sector remains promising despite the current policy headwinds.
The nearly 20 percent drop in stock prices of locally-listed mainland developers this month has provided a good opportunity for risk-defying investors to accumulate stocks of large-scale developers at lower costs.
Large-scale developers are expected to benefit from the restrictive measures and grow bigger as many small players, who usually have weaker financial muscle, will likely lose out in the competition.
"It won't surprise me if more acquisitions and mergers happen," said Christina Ngai, a property analyst at Cinda International Holdings Ltd, noting that consolidation activities have been ongoing in the sector.
Aside from favoring large-scale developers, analysts also have a positive view for developers who have strong exposure in western regions, citing stronger support from the Central Government for economic development in the regions and less policy risk.
The continued support from the Central Government has resulted in rapid urbanization in Chengdu and Chongqing. This, coupled with the release of pent-up post-earthquake demand, is supporting sales growth in the two markets despite a slowdown in sales in other parts of the country, Carol Wu, a property analyst at DBS Vickers, noted in a research report.
"We foresee less policy risk in these cities as the markets are still dominated by end-users, a group that will continue to receive support from the government in home purchases," she said.
As a measure to cool down overheating property markets in some tier-1 cities, the Central Government has cancelled some tax and mortgage incentives for homebuyers who buy properties for investment purposes.
(HK Edition 01/01/2010 page4)