China property shares slide on fears plenum will bring new curbs

HONG KONG Mon Nov 4, 2013 4:32am EST

HONG KONG Nov 4 (Reuters) - China property shares slid on Monday, with investors bracing for more volatility on anticipation of further curbs to rein in home prices at a Communist Party policy meeting this weekend.

The losses came after weekend media reports said the southern city of Shenzhen would raise minimum down payments for second home purchases, following the capital Beijing's lead for more customised measures.

Sentiment was further soured by a front-page editorial in the same newspaper on Monday that referred to rising home prices as a "bubble" that poses a "danger" to the world's second-largest economy, advocating that the government should combine property controls with land and tax policy reforms.

"What is clear is that first-tier cities where home prices are rising the fastest are under pressure to act," said Lee Wee Liat, BNP Paribas' Hong Kong-based head of Asia property research.

"But there's no clarity yet on everything else, and it's spurring profit taking, particularly on the outperformers -- even by some long-only funds," Lee added.

China's new home prices rose the most in nearly three years in September and there is rising concern about social instability as more people are priced out of the market. Top Chinese government officials will meet in Beijing Nov. 9-12 to decide major economic reform.

Last week, Chinese President Xi Jinping pledged to increase the supply of land for homes as well as expenditure on affordable housing projects. His comments spawned some relief the government was likely to stick to measures to manage the supply of housing.

Shenzhen-listed China Vanke, among the country's largest property developers by sales, shed 2 percent after the official China Securities Journal reported that the Shenzhen city government would raise minimum down payments for second home purchases from 60 to 70 percent.

In Hong Kong, Country Garden and Shimao Property each sank more than one percent on Monday, but are still up nearly 30 percent this year. Investors were attracted by their strong sales growth and attractive valuations, with both on track to beat their targets this year.

That compares with the 24 percent slump for Evergrande this year and the 4 percent rise for blue chip counter China Resources Land and 1.7 percent gain for China Overseas Land & Investment.

According to Thomson Reuters StarMine, Shimao boasts an earnings quality ranked in the 90th percentile, with Country Garden in the 84th percentile. Of 27 analysts who cover Shimao, 25 are touting it as a "buy" or "strong buy".

But with their valuations now nearing levels seen by sector blue chips such as China Overseas Land and China Resources Land, BNP's Lee is advising investors to lock in some profit.

"We are more concerned about possible moderation in sales growth in 2014, leading to some developers failing to meet investors' sales expectations," Lee wrote in a note dated Oct. 31.

"The moderation could come from company-specific factors, in particular from constraints related to saleable resources and from a more moderate environment for price and volume growth," he added. (Editing by Jacqueline Wong)

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