1、Disclosures L o g a n e x c l ud e s u r ba n r e d e v el o p m e n t p r o je c t .C o m p an ie s n o t c o v e r e d b y H S B CO f t h e n i n e p r o vi n ce s, t h e m a j o r i t y a r e a m o n g t h em o st p o p u l o u s p r o vin ce s i n Ch i n a o r h a ve e co n o m i e st h a t a r
2、e a t t h e we a ke r e n d o f t h e sp e ct r u mD e v e l o p e r s l a n d b a n k e x p o s u r e t ol o w e r - t i e r c i t i e s i n t he s e p r o v i n c e s *63%J i l i n64%I n n e r M o n g o l i a75%S h a n x i82%H e il o n g ia n g75%S h a n d o n g52%S h a a n x iY a n l o r dLoganK
3、W GS i n o O ce a nCh i n a Jin m a oS h i m a oC O L ICh i n a S CES Z I n ve st m e n tC R L a n dCIF ICGA g i l eGZ R sticky policy 25 February 2019 China Overseas Land Logan excludes urban redevelopment project; results of landbank exposure in 16 districts are from our findings in our thematic r
4、eport, China Real Estate Joining the dots: Finding the new property hot spots (23 May 2018) *Companies not covered by HSBC *The original list of investible cities was 25, but was subsequently refined to 21 cities due to changes in local housing market dynamics Source: Company announcement, HSBC esti
5、mates $ Equities Real Estate May 2019 8 The going gets tougher We have written a series of reports in the past two years identifying investment opportunities in Chinas sprawling property market. As the real estate market started to cool, we have shifted the focus to assessing which cities face the h
6、ighest risk in the event of a correction in house prices. In January, we looked at the level of household debt and how dependent city economies were on the property sector for raising revenue (see A city-by-city debt health check, published on 9 January 2019). This report looks at another risk the s
7、caling back of Chinas vast shantytown redevelopment project. The project has had a huge impact on the residential property market, especially in lower-tier cities. The main catalyst was the decision taken in 2015 to pay cash compensation to many more shantytown residents rather than local government
8、s allocating them alternative accommodation. This allowed them to buy modern flats, pushing up prices and sales volumes. But the government is applying the brakes, especially in cities where property markets are still hot, where it is scrapping or cutting the cash subsidies that allow residents who
9、move out of shantytowns to buy new properties. Effectively, what drove the housing market recovery in 2016 is set to cause a market downturn in 2019. Life after Chinas shantytown sugar rush What started as a social welfare programme turned into a massive boon for the property market. The cash compen
10、sation given to residents to move out of old, run-down properties pushed up sales volumes and prices as millions of people bought new homes. But now the government is scaling back the shantytown programme to help keep a lid on the frothy residential market. The impact will be biggest in smaller citi
11、es, the focus of shantytown redevelopment. In this report we identify nine provinces where sales rely heavily on cash from shantytown compensation, and where the number of new replacement flats is being cut sharply. We identify the developers with the highest exposure to these provinces. This report
12、 looks at another risk the scaling back of the vast shantytown redevelopment project 9 Equities Real Estate May 2019 In this report we forecast that: The number of new start flats related to shantytown projects will fall 54% to 2.85m units in 2019, according to the figure released by Ministry of Fin
13、ance (MoF) and Ministry of Housing and Urban-Rural Development (MOHURD). Based on our sensitivity analysis, a 10ppt decline in cash compensation ratio to 40% (from 50% in 2018e) imply a 2ppt lower shantytown contribution to our base case national sales volume forecast. Guizhou, Shandong, Henan, Shan
14、xi, Heilongjiang, Jilin, Inner Mongolia, Qinghai and Shaanxi, are the provinces more at risk from a shantytown-related slowdown in the housing market. Longfor is most exposed to these provinces, followed by Guangzhou R Longfor and County Garden are Hold Rated while R starts were made on 6.3m units i
15、n 2018, with the balance to be completed by 2020. However, last year China began scaling back targets for the number of new flats to be built as part of this programme and also cut the amount of compensation paid to residents to buy new homes. Inevitably, this has negative implications for the housi
16、ng market, particularly in regions that have become particularly dependent on the shantytown programme to support their real estate markets since 2016. Sales volumes have already started to fall in some areas. The project started to take on far greater significance after 2015 Equities Real Estate Ma
17、y 2019 10 Figure 4: Key policies relevant to shantytown redevelopment after 2015 Time Department Summary Heating Jun-2015 State Council State Council issued the opinion on shantytown redevelopment. The opinion set out the three-year target of 18m construction starts for shantytown redevelopment proj
18、ects in 2015-17. The opinion clearly specified that the scale of shantytown redevelopment should be enlarged and construction start should be accelerated. Beijing also encouraged various funding model for shantytown redevelopment including government purchase model and PPP. Aug-2015 MOHURD MOHURD is
19、sued the notice to encourage cash compensation for shantytown redevelopment and set monetisation ratio to be higher than 50%. Mar-2016 NPC 2016 government work report sets shantytown new start target at 20m units as part of the13th Five-year Plan. The government work report also encourages higher sh
20、antytown cash compensation ratio. May-2017 State Council New three-year target of 15m units of shantytown redevelopment new construction in 2018-20 was set during the executive meeting held by State Council. Mar-2018 NPC Target of 5.8m units of shantytown redevelopment new flats was mentioned in the
21、 2018 government work report. Cooling Jun-2018 CDB The approval for shantytown project funding was revoked to CDBs head office from local branches, indicating the scaling down of shantytown funding and cash compensation scheme. Jun-2018 MoF MoF issued draft of comment on regulating government purcha
22、se. It limited the length of services purchased by government to be within three years. Special treatment of shantytown redevelopment was not mentioned. Oct-2018 State Council During the executive meeting held by State Council, State Council called for cities with low housing inventory and upward pr
23、essure on housing prices to terminate cash compensation for shantytown redevelopment projects. Stringent standards should be applied when selecting shantytown projects. Oct-2018 MOHURD During the meeting held by MOHURD with representatives from NDRC, MoF and PBoC, it is agreed that government purcha
24、se model on shantytown projects would not be allowed in 2019 and local government would need to issue project bond for shantytown project instead. Mar-2019 NPC New start target of shantytown redevelopment was not mentioned in 2019 government working report Apr-2019 MoF, MOHURD According to the notic
25、e released on social housing budget jointly issued by MoF and MOHURD, 2019 shantytown redevelopment target is set at 2.85m units. Source: Government release, HSBC 11 Equities Real Estate May 2019 Screening for provinces that rely on shantytown spending In November 2018, MOHURD reiterated that it int
26、ends to adhere to the target to commence construction of 15m shantytown units in 2018-20, whereby 6.26m units were completed in 2018. While the government has achieved fairly consistent new starts level of c6m units since 2015, there is expected to be a sharp decline in 2019, to 2.85m units, accordi
27、ng to an official document from the Ministry of Finance, released on 23 April 2019. The newly released 2019 target is lower than our initial expectation and implies a 54% decline versus 2018. Based on this, the remaining balance to be completed in 2020 should be higher, at 5.9m units. Geographically
28、, the level of dependency on shantytown redevelopment varies significantly in different parts of China. We use two metrics to quantify this: Estimated shantytown new starts gross floor area (GFA) vs total new starts GFA at the provincial level Estimated shantytown cash compensated GFA vs total sales
29、 volume at the provincial level Our analysis reveals that 11 provinces have significant reliance on shantytown redevelopment based on the two metrics above. After taking into consideration of local economic strength and the magnitude of shantytown target reduction on the provincial level, we find th
30、at nine provinces: Guizhou, Shandong, Henan, Shanxi, Heilongjiang, Jilin, Inner Mongolia, Qinghai, and Shaanxi are at risk from to a potential housing market downturn. Of note, the shantytown new starts target for the nine provinces has been trimmed by 71% on average. Figure 5: 2019 Shantytown const
31、ruction unit targets for different provinces 2018 actual 2019 target 2019 target vs 2018 actual Province Unit 000 Unit 000 Heilongjiang 130 24 -82% Guizhou 398 76 -81% Henan 663 150 -77% Ningxia 30 8 -75% Shandong 852 214 -75% Shanxi 128 32 -75% Hunan 281 80 -72% Liaoning 63 19 -69% Xinjiang 471 147
32、 -69% Jilin 95 31 -67% Qinghai 31 10 -67% Inner Mongolia 142 51 -64% Hubei 243 90 -63% Zhejiang 406 183 -55% Hainan 15 7 -53% Shaanxi 203 98 -52% Hebei 235 119 -49% Beijing 34 20 -42% Anhui 294 212 -28% Guangdong 35 25 -28% Yunnan 139 101 -28% Jiangxi 329 249 -24% Sichuan 255 198 -22% Gansu 232 182
33、-22% Jiangsu 256 220 -14% Chongqing 54 50 -8% Tianjin 22 26 18% Guangxi 91 120 32% Fujian 45 63 41% Tibet n.a. 19 n.a. Shanghai n.a. 30 n.a. National total 6,260 2,853 -54% Note: No available data for Tibet and Shanghai (n.a. = not available) Source: Provincial government working reports, MoF, MOHUR
34、D, CRIC, CEIC, HSBC estimates Equities Real Estate May 2019 12 Figure 6: Summary of key findings 11 provinces with heavy reliance on shantytowns Guizhou, Inner Mongolia, Qinghai, Shandong, Jiangxi, Heilongjiang, Shanxi, Shaanxi, Henan, Jilin, Zhejiang 9 provinces with heavy reliance and meaningful c
35、ut in 2019 shantytown target* Heilongjiang, Guizhou, Henan, Shandong, Shanxi, Jilin, Qinghai, Inner Mongolia, Shaanxi *Zhejiang province was taken out from the initial screen of 11 provinces due to solid local economic conditions Source: HSBC estimates Figure 7: Nine provinces more exposed to downsi
36、de risk Source: Local government website, MoF, CREIS, Wind, HSBC estimates Inner M ong o lia h as mor e tha n 100 , 00 0 un it s ofsha nt yto w n co nst r uc tio n st art in 20 18 . We est im atethat c 35 % of h om e sa le s vol ume in 201 8 w ascon trib ut ed by s ha nty tow n ca sh co mpe ns ati o
37、n . Thepro v in ce re por t ed a 64 % sha nt yto w n pr oj ect tar getcut in 2019 .Inne r Mon goli aQ in gh aiShandongShanxiHenanGuizho uShaanxiSha nd ong is t he larg est pr ov i nce in ter ms ofsha nt yto w n re de vel op me nt u nit s . It ha s mor ethan 0 . 8 m u nit s of sh ant yt o wn c on str
38、u ct ionstart in 20 18 , ac co unt ing f or c 14 % of nat ion altota l . The pr ov in ce is r ep orte d to ha ve a 75 %shantytown pr oj ec t ta rg et cut in 2019 .Henan is t he se con d l a rge st pr ov in cereg ar di ng sh ant yt own de ve lo p men t . P rop ert ysal es vo lu me in 20 18 h as re ac
39、 hed 63 % mor ethan th at in 20 15 whi le AS P in cre as ed byaro u nd 40 % in He nan s l owe r t ier ci tie s in p asttwo y ear s . T he pro vi nc e is re p orte d to ha ve a77 % shantytown pro ject target cut in 2019 .Sha nx is sal es vo lu me i ncr ea sed by 50 % in20 1 8 co mp ar e d w ith th at
40、 of 2 0 15 . We e st im at emor e th an 35 % of pr ov in cia l sal es vo lu me isrela t ed to s ha nty town ca sh co mpe ns ati on . Th epro v in ce is re por t ed to ha ve a 75 % s han tyt ownpro ject target cut in 2019 .Sh aan xi ha d an o vera ll hi gh er ca shco mpe ns ati on r ati o of 77 % in
41、201 7 . ASP r os e30 % in Sh aan xi s low er t ier cit ie s s uc h as B ao ji inpas t two y ear s . Th e pro vi nc e is rep ort ed to h av ea 52 % shantytown pro ject target cut in 2019 .Qingha i ha s he av y r el ian ce on sha nt yto w n pro j ec ts .Ba s ed on o ur e sti mat e, s han tyt own new c
42、 on stru ct io nac co u nt s f or c 78 % of pr o vi nc e to ta l n ew co ns tr uc tio nwhil e c as h c om pe ns ati on con tr ibu t ed c 35 % of s al esvol um e in 2 01 8 . Th e pro vin ce is rep ort ed to h av e a67 % shantytown pro ject target cut in 2019 .Gui zho us sa le s v olu me ju m ped by 5
43、1 % in 20 18co mpa red with th at in 201 5 wh en ca sh co mp en sat io njus t sta r ted . ASP in lowe r t ier c it ies su ch as Z un yi ha sincr ea se d m ore t ha n 30 % sin ce 201 7 . T he p ro vin ce isrep or ted to h av e a s ign ifi ca n t s han tyt own pro je cttarget cut of 81 % in 2019 .Jili
44、nJi lin h as ne ar l y 100 , 00 0 un its ofsha nt yto w n c on stru cti on sta r t in 201 8 .The pr ov in ce r epo rte d a 63 %shantytown pro ject target cut in 2019 .HeilongjiangHei lon gjia ng ha s th e lar ge st targ etcut re gar din g sh an tyt own p roje ctamo ng a ll pr ovi nc es in 20 19 , fr
45、o m201 8 a ctu al of 1 30 , 00 0 u nit s to on ly24 , 000 uni ts, down 82 % .Inne r Mon goli a13 Equities Real Estate May 2019 Figure 8: The provinces most reliant on the shantytown programme and facing cuts are located in the west and northeast of China Source: HSBC How this theme impacts our inves
46、tment thesis Our landbank analysis reveal that developers exposure (GFA) to the nine provinces with a high reliance on shantytown redevelopment and that face major cuts in new building starts related to the programme, is in the range of 0% to 15.6%. The top three developers with the highest landbank
47、 exposure are Longfor (15.6%), followed by Guangzhou R Logan excludes urban redevelopment project; *:companies not covered by HSBC Source: Company announcement, HSBC estimates How this fits into the bigger picture Times have changed, and the real estate boom is over. Hence, since January we have tur
48、ned our attention to assessing the potential risks associated with a real estate slowdown. Our first thematic report this year examined what Chinas attempted to reduce leverage means for housing demand. This time, we turn our attention to risks associated with the tapering of the governments massive
49、 shantytown redevelopment project. Our proprietary house view on city preference Through the series of thematic reports we have published over the last two years, we have created maps of Chinese cities and provinces that we believe are the most and least investible from the real estate perspective. Given the divergent dynamics across cities, we believe a thorough understanding of regional preferences and developers corresponding landbank exposure has become an increasingly important factor in
