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New household registration to spur investment chance
By Tony Tsang and Jason Ching |
December 25, 2012, Tuesday
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Print Edition
Print Edition
FINANCIAL news portal JRJ reported last week that Harbin, capital of northeastern Heilongjiang Province, and Nanning, capital of northern Guangxi Zhuang Autonomous Region, have recently announced new measures and opinions on household registration.
Specifically, Harbin government issued an opinion draft, stating that the city plans to launch a new household registration system to combine both urban and rural populations before 2015, replacing the current household registration system.
Meanwhile, Nanning also issued the "measures for implementation of further reforms of household registration system", stating that the city will no longer separate its household into urban and rural, and that one could become a registered household after buying a flat in the city, or working in the city for four years, or fulfilling certain investment amount.
JRJ said this latest attempts of household registration reform in two of China's provincial cities clearly indicated the governments' determination to facilitate the next stage of urbanization.
According to JRJ, there will be potential investment opportunities of 300 billion yuan (US$48.2 billion) due to urbanization, mainly by creating more demand for development. Since increasing rural residents migrate to cities, it will result in significant demand for urban investment and properties development.
For example, Harbin targets to achieve 55 percent of urbanization rate by 2015 and the population in Harbin is around 10.63 million people, implying that there will be 600,000-700,000 residents to migrate from rural to cities.
With the cancellation of rural household registration, it is expected to have an extra 3 million people in the two cities and stimulate potential investment of 300 billion yuan based on the demand of 100,000 yuan per resident for infrastructure and public services.
In our view, despite recent recovery in home prices in China, the magnitude of the price rebound remains mild. The 100-city home price index, compiled by Soufun.com, has rebounded by 1.23 percent since June.
No new tightening
We believe that the government is only likely to reiterate the existing property policies and that we do not expect any further new tightening policies targeting property industry in the near-term.
In the second half of 2009 and 2010, new supply in the commodity residential market fell due to tight financing for Chinese developers.
We expect this falling supply scenario to happen again in 2013, on the back of lower inventory levels, falling new construction starts in 2012 and continually declining land sales (in top 300 cities) in 2011 and 2012.
With the expected fall in new supply, we expect pricing power to return for the developers and property prices to likely rise by 5 to 10 percent in 2013.
In this scenario, we believe overlooked, quality small-cap developers should see stronger valuation re-ratings ahead.
Tony Tsang and Jason Ching are analysts with Deutsche Bank AG. The article was adapted from a Deutsche Bank research report issued on Dec. 20. The opinions expressed here are their own.
Specifically, Harbin government issued an opinion draft, stating that the city plans to launch a new household registration system to combine both urban and rural populations before 2015, replacing the current household registration system.
Meanwhile, Nanning also issued the "measures for implementation of further reforms of household registration system", stating that the city will no longer separate its household into urban and rural, and that one could become a registered household after buying a flat in the city, or working in the city for four years, or fulfilling certain investment amount.
JRJ said this latest attempts of household registration reform in two of China's provincial cities clearly indicated the governments' determination to facilitate the next stage of urbanization.
According to JRJ, there will be potential investment opportunities of 300 billion yuan (US$48.2 billion) due to urbanization, mainly by creating more demand for development. Since increasing rural residents migrate to cities, it will result in significant demand for urban investment and properties development.
For example, Harbin targets to achieve 55 percent of urbanization rate by 2015 and the population in Harbin is around 10.63 million people, implying that there will be 600,000-700,000 residents to migrate from rural to cities.
With the cancellation of rural household registration, it is expected to have an extra 3 million people in the two cities and stimulate potential investment of 300 billion yuan based on the demand of 100,000 yuan per resident for infrastructure and public services.
In our view, despite recent recovery in home prices in China, the magnitude of the price rebound remains mild. The 100-city home price index, compiled by Soufun.com, has rebounded by 1.23 percent since June.
No new tightening
We believe that the government is only likely to reiterate the existing property policies and that we do not expect any further new tightening policies targeting property industry in the near-term.
In the second half of 2009 and 2010, new supply in the commodity residential market fell due to tight financing for Chinese developers.
We expect this falling supply scenario to happen again in 2013, on the back of lower inventory levels, falling new construction starts in 2012 and continually declining land sales (in top 300 cities) in 2011 and 2012.
With the expected fall in new supply, we expect pricing power to return for the developers and property prices to likely rise by 5 to 10 percent in 2013.
In this scenario, we believe overlooked, quality small-cap developers should see stronger valuation re-ratings ahead.
Tony Tsang and Jason Ching are analysts with Deutsche Bank AG. The article was adapted from a Deutsche Bank research report issued on Dec. 20. The opinions expressed here are their own.
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