Asia Pacific Equity Research03 January 2024 China/HK PropertyDevelopers' delivery +14% Y/Y in 2023 / PSL revived / investor feedback on Link REIT, Wharf REIC & SHKPChina PropertyKarl Chan AC(852) 2800-8513karl.chan@jpmorgan.comBloomberg JPMA KCHAN Jocelyn Gao(852) 2800-8529jocelyn.gao@jpmorgan.comVenus Choi(852) 2800-8599venus.choi@jpmorgan.comJ.P. Morgan Securities (Asia Pacific) Limited/ J.P. Morgan Broking (Hong Kong) LimitedSee page 20 for analyst certification and important disclosures, including non-US analyst disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.www.jpmorganmarkets.comAlthough the top 100 developers’ December sales were weaker than expected (more in our report), in the past few days there were two marginally positive developments: (1) Major developers’ home delivery in 2023 ended up to be +14% Y/Y, and even distressed developers saw a 16% Y/Y growth, showing the impact of rescue funds on home delivery is playing out; and (2) there was an uptick in the PSL balance in December 2023 (Rmb350 billion). While the exact usage is not yet clear, the additional funding could partially go to either “ensuring home delivery”( 保 交 房 ), which helps stabilize homebuyers’ confidence, or urban village renovation (城中村改造), which helps support real estate investment (or sales if cash compensation is involved). That said, without a meaningful pick-up in sales, we believe the Mainland China property sector may continue to underperform. Meanwhile, we also stay cautious on Hong Kong property with home prices continually dropping & no meaningful pick-up in office & retail. We continue to recommend three pair trade ideas: (1) long Link REIT & short Wharf REIC(link) – more in investor feedback; (2) long CKA & short NWD (link); (3) long CR Land & short Vanke-H (link). Some progress in “ensuring home delivery”: According to estimates from EH Consulting (note: the data is not official and the basis may be different from companies’ reporting), major developers’ home delivery (by number of units) rose 14% Y/Y on average (Table 1). By type, SOEs were +14% Y/Y and non-distressed POEs +4% Y/Y. Interestingly, distressed developers saw an outperforming 16% Y/Y growth (although this is likely due to a low base). The positive Y/Y growth shows the progress in “ensuring home delivery”, which has been supported by (1) deployment of rescue funds through PSL funding (Rmb632 billion newly created from September 2022 to February 2023, although not all went to home delivery); (2) continual asset disposals by distressed developers; and (3) authorities imposing much st...
