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Sector Update
April 19, 2010
Peter Hongwei BAI
SFC CE Ref:AMB141 baihw@cicc.com.cn

Real Estate

RESEARCH

China Reining in Rampant Property Prices

What's new:
In a regular State Council conference held on April 14, Premier Wen Jiabao unveiled the central government would implement a series of measures to check the rampant property price upsurges seen in some Chinese cities. These measures include: 1) setting a 50% minimum downpayment for the purchase of a second home and raising mortgage rates for such homes at no less than 1.1x the benchmark rates, with a hope to rein in inappropriate housing demand; 2) increasing effective housing supply; 3) speeding up policy housing construction; and, 4) intensifying market supervision. The conference also added that property price stabilization and housing safeguards are the responsibilities of provincial governments and the specific tasks of city-level governments.

Comments:
Generally speaking, this move is within market expectations and makes the levying of a property holding tax less likely in the near term. A new round of real estate tightening is confirmed and the market will enter a policy detailing/observation period.

The government has a clear knowledge of the root cause of rampant house prices and has made a decisive move to stem their rise. The governments efforts to check property prices through mortgage differentiation, in line with our expectation, reduces the likelihood of launching a property holding tax in the near term and will bring closure to this round of discussion on real estate tightening. The government clearly knows supply expansion is critical to checking the rise of house prices. Together with reforms to the system of selling land to the highest bidder, we believe the frequent occurrence of land kings will be reined in and the rampant housing price surges will be checked, positive to bringing overly high property prices down. In our view, it is an effective policy combination: home mortgage control over speculative demand, scaling up supply of land, small/mid-sized properties and policy housing, and crack down on property hoarding, reluctance to sell land and land idling. Going ahead, we believe property prices will level off soon and correct in 2H10 on increased supply. To better carry out the tightening policy, local governments and relevant government bodies will release corresponding policy details, such as the area and structure of land supply, the criteria for the classification of second homes and minimum downpayment for second home purchases. We predict regions with overly inflated property prices will implement harsh policy details.

Recommendation:
Property prices will enter a period of correction while real estate stocks have fully priced in market pessimism. With the other shoe dropping, real estate stocks wont have much downside room, though a decent rally is also unlikely as investors will wait for policy details and market reactions. The real estate sector is expected to perform well in 2H10. We maintain our call that at this stage investors should buy real estate stocks rather than physical houses; investors with a mid/long horizon should buy on dips and wait patiently.

Risks:
1) A second dip in the economy combined with policy tightening; 2) over-aggressive policies.

This report is based on information available to the public. No representation is made that it is accurate or complete. This report is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. China International Capital Corporation Limited and others associated with it (CICC) may have positions in, and may effect transactions in securities of companies mentioned herein and may also perform or seek to perform investment banking services for those companies. This report may also be made available (1) in Hong Kong by China International Capital Corporation Hong Kong Securities Limited, and (2) in Singapore only to accredited investors and/or institutional investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act and Regulations in Singapore, by China International Capital Corporation (Singapore) Pte. Limited (CICCSG). By virtue of distribution by CICCSG to these categories of investors in Singapore, disclosure under Section 36 of the Financial Advisers Act (which relates to disclosure of a financial advisers interest and/or its representatives interest in securities) is not required. Recipients of this report in Singapore should contact CICCSG in respect of any matter arising from or in connection with this report. Copyright of this report belongs to CICC. Any form of unauthorized distribution, reproduction, publication, release or quotation by any institution or individual is prohibited without CICC's written permission.

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Real Estate: April 19, 2010

Figure 1: Valuations of comparables

Price Company Ticker Rating
(Rmb) 2010-4-15

Target Total Price Mkt_cap

2010-4-15

EPS
(Rmb)

CAGR 11E 09-11E 08A

P/E(x) 09A 10E 11E

P/B (x) 08A 09A 10E 11E

08A

09A

10E

NAV/share Price to NAV Total liab./ Total (Rmb) Disc./Prem. total assets GFA (Sqm mn) 09A 10E 09A 10E 08A

A share Property Mainly for development Vanke A Gemdale Financial Street Beijing Capital Devt. Poly Citychamp Tartong Huafa Industrial Beijing Urban Construction Risesun Nanjing Chixia China Enterprise Yangguang Yeland Group Dalong Weiye Average Median For development and investment Jinqiao A Lujiazui A China World Trade Center Average Median B Share Property Vanke B Jinqiao B Lujiazui B Average Median HK Listed Mainland Property COLI CRLand Beijing Capital Land Greentown Sino Ocean Franshion Shenzhen Investment Agile Longfor Glorious R&F Shimao Property Country Garden Shui On Evergrande Powerlong Average Median 688 1109 2868 3900 BUY BUY BUY BUY
(HK$) (HK$) (HK$ bn) (HK$) (HK$) (HK$) (HK$) (HK$) (HK$) (HK$ bn) (HK$) (HK$) (HK$) (HK$)

000002 600383 000402 600376

BUY BUY BUY BUY

9.1 12.8 10.4 19.4 18.5 13.7 15.0 16.6 18.5 6.4 10.4 8.7 6.7 13.8

n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

98.1 31.8 25.9 22.2 65.3 8.4 12.2 12.3 16.6 6.7 11.3 4.7 6.0 5.7

0.37 0.34 0.42 0.50 0.64 0.28 0.80 0.44 0.41 0.18 0.43 0.05 0.30 0.01

0.48 0.72 0.55 0.81 1.00 0.46 0.83 1.15 0.68 0.21 0.58 0.50 0.32 0.82

0.67 0.96 0.66 1.00 1.25 1.09 1.04 1.12 1.08 0.33 0.53 0.58 0.38 0.96

0.83 1.25 0.79 1.30 1.40 1.41 1.14 1.05 1.41 0.42 0.66 0.46 0.48 1.32

31% 32% 20% 27% 18% 74% 17% -4% 44% 41% 6% -4% 22%

24.8 37.8 24.9 39.0 29.1 48.3 18.8 37.7 44.7 35.5 24.3 164.7 22.2

18.8 17.9 19.0 23.9 18.5 29.6 18.0 14.5 27.2 29.9 17.7 17.5 20.6 16.8 20.9 18.8

13.6 13.3 15.8 19.3 14.8 12.6 14.4 14.8 17.1 19.5 19.5 15.1 17.6 14.3 15.9 15.1

11.0 10.2 13.2 14.9 13.2 9.7 13.1 15.9 13.1 15.0 15.8 19.1 13.9 10.4 13.4 13.2

3.1 3.4 1.8 5.6 4.6 4.9 2.7 3.4 7.9 2.6 3.5 2.6 2.4 4.6 3.7 3.4

2.7 2.1 1.7 2.3 2.6 4.1 2.4 2.5 4.3 2.5 3.0 2.4 2.2 3.6 2.7 2.5

2.3 1.9 1.5 2.1 2.2 3.1 2.1 2.1 3.5 2.2 2.6 2.1 1.9 2.9 2.3 2.1

1.9 10.6 11.6 1.6 15.8 17.8 1.4 15.4 16.2 1.8 24.0 27.3 1.9 21.9 22.5 2.4 15.1 16.4 1.8 21.5 23.3 1.8 19.0 20.4 2.8 12.4 16.0 1.9 7.2 7.9

-14% -21% -19% -28% -32% -36% -20% -29% -15% -18% -9% -17%

67% 70% 46% 82% 71% 77% 64% 66% 68% 58% 64% 63% 50% 61% 64% 64%

30.6 15.5 6.9 12.0 29.0 2.2 7.0 3.4 9.3 2.2 2.4 2.4 1.4 9.4

600048 ACCUMULATE 600067 ACCUMULATE 600325 ACCUMULATE 600266 ACCUMULATE 002146 ACCUMULATE 600533 600675 000608 000616 600159 HOLD HOLD HOLD HOLD HOLD

-30% -36% -13% -19% 49% 16%

-12% -19% -13% -21% -13% -18% 16% 6% -9% 8% -6% -18%

2.3 11.9 13.1 1.9 10.0 10.6 1.7 5.8 6.2

27% 2,416.3 26% 27% 33.2 32.7

2.3 12.9 14.7 1.9 1.9

-13% -19%

600639 600663 600007

BUY HOLD HOLD

12.9 23.4 11.1

n.a. n.a. n.a.

9.3 37.7 11.2

0.33 0.47 0.35

0.43 0.61 0.29

0.46 0.62 0.16

0.54 0.65 0.36

12% 3% 12% 9% 12%

39.4 49.6 31.6 40.2 39.4

30.3 38.6 38.7 35.9 38.6

28.1 37.8 70.0 45.3 37.8

24.2 36.2 31.0 30.5 31.0

3.6 5.2 2.7 3.8 3.6

3.3 4.6 2.6 3.5 3.3

2.9 4.1 2.5 3.2 2.9

2.6 15.6 17.3 3.7 18.4 18.8 2.3 10.9 10.9 2.9 2.6
(HK$) (HK$)

-17% -25% 27% 2% 4% 2% 24% 2% 0% 2%

43% 47% 48% 46% 47%

2.2 3.6 0.5

200002 900911 900932

BUY BUY BUY

8.8 7.5 13.5

16.1 14.1 17.5

114.1 10.8 43.8

0.43 0.38 0.55

0.55 0.48 0.69

0.78 0.53 0.72

1.01 0.65 0.79

35% 16% 7% 24% 26%

20.6 19.6 24.6 21.1 20.1

16.0 15.5 19.6 16.6 15.7

11.3 14.0 18.8 13.9 12.7

8.7 11.5 17.2 11.4 10.1

2.6 1.8 2.6 2.1 2.2

2.3 1.7 2.3 1.9 2.0

2.0 1.5 2.2 1.8 1.8

1.7 12.0 13.4 1.4 17.7 20.1 1.9 20.9 21.8 1.5 1.5
(HK$) (HK$)

-27% -35% -58% -63% -35% -38% -42% -47% -42% -46%

67% 43% 47% 53% 52%

30.6 2.2 3.6

16.3 15.9 2.9 9.6 6.8 2.4 2.7 9.6 8.4 3.1 12.5 13.3 2.7 3.8 3.3 2.6

22.8 22.0 5.0 19.1 7.7 3.1 3.9 14.7 10.3 4.3 15.2 17.3 3.2 4.9 3.6 3.8

133.0 80.1 5.9 15.7 38.0 22.4 9.6 34.1 43.1 24.5 40.3 47.3 45.1 19.2 49.8 10.5

0.49 0.33 0.22 0.52 0.27 0.09 0.19 0.42 0.05 0.09 0.73 0.36 0.10 0.35 0.01 0.09

0.79 0.53 0.30 0.63 0.21 0.11 0.22 0.60 0.34 0.21 0.79 0.77 0.14 0.51 0.03 0.26

1.03 0.78 0.39 1.00 0.29 0.13 0.28 0.86 0.51 0.33 1.19 1.00 0.16 0.31 0.32 0.36

1.33 1.16 0.55 1.73 0.42 0.16 0.38 1.18 0.78 0.45 1.67 1.34 0.22 0.37 0.38 0.40

30% 48% 35% 66% 41% 19% 33% 41% 53% 46% 46% 32% 23% -15% 246% 23% 35% 35%

33.4 48.6 13.3 18.6 25.3 27.1 14.5 22.8 155.9 33.9 17.2 37.0 28.1 10.9 292.4 27.5 34.3 27.1

20.6 29.9 9.6 15.3 31.9 21.3 12.6 16.1 25.0 14.9 15.9 17.2 19.1 7.4 104.7 9.8 17.8 16.1

15.9 20.5 7.4 9.6 23.4 18.2 9.7 11.2 16.5 9.6 10.5 13.3 17.4 12.3 10.4 7.2 13.3 11.8

12.2 13.7 5.3 5.5 16.1 15.1 7.2 8.1

4.0 2.6 1.2 1.6 2.0 2.0 0.9 2.3

3.2 2.1 1.1 1.6 1.4 1.4 0.8 2.1 3.1 1.9 2.1 1.8 1.9 0.8 3.7 1.8 1.9 1.9

2.7 1.9 1.0 1.4 1.3 1.3 0.8 1.8 2.6 1.5 1.8 1.6 1.7 0.7 2.7 1.4 1.6 1.6

2.3 17.3 19.0 1.6 18.4 20.0 0.9 6.9 7.1

-6%

-14%

62% 55% 68% 76% 59% 60% 58% 61% 88% 93% 73% 59% 61% 49% 80% 76% 67% 61%

30.6 22.2 8.6 28.6 14.0 2.2 22.5 28.7 26.1 16.9 31.8 30.4 45.2 13.1 50.5 7.6

-14% -20% -58% -59% -55% -60% -30% -35% -38% -42% -52% -58% -34% -41% -5% -18%

1.1 21.2 23.9 1.2 1.2 0.7 9.6 3.9 5.6 10.4 4.2 6.5

3377 ACCUMULATE 817 604 3383 960 845 2777 813 2007 272 3333 1238 BUY HOLD BUY BUY BUY HOLD HOLD HOLD HOLD Not-rated Not-rated

1.5 14.6 16.3 2.0 1.2 8.8 4.7 10.3 5.4

10.7 11.9 7.0 22.9 7.5 9.9 12.6 10.3 8.8 6.5 9.8 9.3 2.3 2.2 2.0 1.0 8.0 4.5 4.5 2.2

-34% -42% -31% -34% -23% -31% -25% -36% -42% -46% 9% -17%

1.4 18.1 19.0 1.4 17.4 19.2 1.5 0.6 2.0 1.1 1.4 1.3 3.6 6.6 3.0 5.0 4.3 7.1 4.0 5.4

-48% -52% -26% -36% -30% -36%

Source: Bloomberg, CICC Research

This report is based on information available to the public. No representation is made that it is accurate or complete. This report is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. China International Capital Corporation Limited and others associated with it (CICC) may have positions in, and may effect transactions in securities of companies mentioned herein and may also perform or seek to perform investment banking services for those companies. This report may also be made available (1) in Hong Kong by China International Capital Corporation Hong Kong Securities Limited, and (2) in Singapore only to accredited investors and/or institutional investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act and Regulations in Singapore, by China International Capital Corporation (Singapore) Pte. Limited (CICCSG). By virtue of distribution by CICCSG to these categories of investors in Singapore, disclosure under Section 36 of the Financial Advisers Act (which relates to disclosure of a financial advisers interest and/or its representatives interest in securities) is not required. Recipients of this report in Singapore should contact CICCSG in respect of any matter arising from or in connection with this report. Copyright of this report belongs to CICC. Any form of unauthorized distribution, reproduction, publication, release or quotation by any institution or individual is prohibited without CICC's written permission.

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Beijing
China International Capital Corporation Limited 28 Floor, China World Office 2 1 Jianguomenwai Avenue Beijing 100004, P.R. China Tel: (8610) 6505-1166 Fax: (8610) 6505-1156
th

Beijing Jianguomenwai Avenue Branch

1st Floor, SK Tower 6A Jianguomenwai Avenue Beijing 100022, P.R. China Tel: (8610) 8567-9238 Fax: (8610) 8567-9235

Shanghai Middle Huaihai Road Branch

1-B & 2-B, Century BaShi Building 398 Middle Huaihai Road Shanghai 200020, P.R. China Tel: (8621) 6386-1195 Fax: (8621) 6386-1180

Shanghai
China International Capital Corporation Limited Shanghai Branch 32nd Floor, Azia Center 1233 Lujiazui Ring Road Shanghai 200120, P.R. China Tel: (8621) 5879-6226 Fax: (8621) 5888-8976

Shenzhen Fuhuayilu Branch

107 & 201, Annex Building Shenzhen Duty Free Commercial Tower 6 Fuhua 1st Road Futian District Shenzhen 518048, P.R. China Tel: (86755) 8832-2388 Fax: (86755) 8254-8243

Hong Kong
China International Capital Corporation Hong Kong Securities Limited 29th Floor, One International Finance Centre 1 Harbour View Street Central, Hong Kong, P.R. China Tel: (852) 2872-2000 Fax: (852) 2872-2100

Hangzhou Jiaogong Road Branch

1F, Euro American Center 18 Jiaogong Road Hangzhou 310012, P.R. China Tel: (86571) 8849-8000 Fax: (86571) 8735-7743

Hong Kong
China International Capital Corporation Hong Kong Asset Management Limited 29th Floor, One International Finance Centre 1 Harbour View Street Central, Hong Kong, P.R. China Tel: (852) 2872-2000 Fax: (852) 2872-2100

Nanjing Zhongshan Road (North) Branch

2F, Greenland Plaza 1 Zhongshan Road (North) Nanjing 210008, P.R. China Tel: (8625) 8316-8988 Fax: (8625) 8316-8397

Singapore
China International Capital Corporation (Singapore) Pte. Limited 39-04, 6 Battery Road Singapore 049909 Tel: (65) 6572-1999 Fax: (65) 6327-1278

Guangzhou Tianhe Road Branch

40F, Teemtower 208 Tianhe Road Tianhe District Guangzhou 510620, P.R. China Tel: (8620) 8396-3968 Fax: (8620) 8516-8198

This report is based on information available to the public. No representation is made that it is accurate or complete. This report is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. China International Capital Corporation Limited and others associated with it (CICC) may have positions in, and may effect transactions in securities of companies mentioned herein and may also perform or seek to perform investment banking services for those companies. This report may also be made available (1) in Hong Kong by China International Capital Corporation Hong Kong Securities Limited, and (2) in Singapore only to accredited investors and/or institutional investors, as defined in the Financial Advisers Regulations and the Securities and Futures Act and Regulations in Singapore, by China International Capital Corporation (Singapore) Pte. Limited (CICCSG). By virtue of distribution by CICCSG to these categories of investors in Singapore, disclosure under Section 36 of the Financial Advisers Act (which relates to disclosure of a financial advisers interest and/or its representatives interest in securities) is not required. Recipients of this report in Singapore should contact CICCSG in respect of any matter arising from or in connection with this report. Copyright of this report belongs to CICC. Any form of unauthorized distribution, reproduction, publication, release or quotation by any institution or individual is prohibited without CICC's written permission.