GHM trip:Divergent impact from policy but strong momentum

We visited Guangzhou, Foshan and Zhuhai in Guangdong-Hong Kong-Macau (GHM) Greater Bay area last week, which are the core, satellite andlaggard cities, respectively, in the region. The companies we met areconfident regarding the long-term economic and property market outlookin GHM. They believe the world-class infrastructure network that creates“one hour commuting circles” will help promote stronger dispersion ofcapital/talent, more balanced economic development in the region androbust integration between more advanced East GHM and relativelylaggard west end. We believe a vibrant macro in GHM will continue toattract investments, foster business development and build solid demandgrowth (higher population levels with a concurrent rise in per capitaincome) to drive a buoyant property market in the longer run.

    Therefore, despite different levels of restrictions on home ownership inthese three cities and the divergent impacts on price and volume (Zhuhaiappears to be weakest among the three) in the near term, we believe thatoverall market sentiment remains strong. Although more stringenttightening policies since April along with tighter mortgage conditions haveresulted in lower sell-through and cash collection ratios, developers arehighly confident that the market will be much more resilient in this cycle(mortgage and developers’ financing conditions are not as severe as in theprevious downturn) and that any marginal policy loosening could stimulatetransactions and price appreciation quickly. Meanwhile, although presaleASP control appears to be stringent, the governments in Foshan’s andGuangzhou’s non-core districts allow two contracts (one for the propertypurchase to which the ASP control is applied, one for housing decoration),which provides headroom for developers’ profitability, especially amidcontinuous soaring land prices in the region. Local governments plan toincrease land supply in most GHM cities during 2017-19 from the 2015-16trough levels with a focus on new development areas where industrial andinfrastructure upgrades are underway.