Property and Property Management: 4Q24 Outlook and Policy Impacts
UOB Kay Hian
October 10, 2024
The property and property management sector is expected to experience a significant transformation in the upcoming quarter, driven by a combination of increased sales during Golden Week and key policy implementations. The focus in 4Q24 will shift towards policy execution and an improvement in market fundamentals, bolstered by enhanced transaction volumes in both primary and secondary property markets. This article dives deep into the sector’s performance, policy shifts, and the implications for listed companies in the space.
Encouraging Sales Performance During Golden Week
The property sector saw a surge in sales during the 1-7 October Golden Week, with average daily transactions of primary properties across 50 major cities growing 65% year-on-year (yoy). Secondary transactions showed an even more robust growth, with a 98% yoy increase. This uptick was especially pronounced in Tier 1 cities like Shenzhen and Beijing, which experienced transaction growths of 261% and 153%, respectively.
Tenant sales for leading mall operators also posted an average growth of over 20%, demonstrating resilience and strong consumer demand. Additionally, positive same-store sales growth among key players highlighted the strengthening fundamentals of the property management sector.
Policy Implementation and Market Fundamentals in Focus
In the upcoming months, the focus is expected to shift to policy implementation. At the end of September 2024, the Chinese government rolled out policies aimed at stabilizing the real estate market. A key feature of these policies is the destocking program, which includes raising the available proportion of low-cost PSL (Pledged Supplementary Lending) from 60% to 100%. This move is designed to lower the funding cost for acquirers participating in the destocking program, enhancing profitability.
The policy is expected to benefit property management companies, especially as secondary transactions continue to recover. Services such as interior decoration and real estate agency offerings, which are significant components of property management companies’ value-added services (VAS), are expected to thrive in this environment.
Expected Sales Decline in 4Q24 and Beyond
Despite the positive sentiment, the market is forecasted to see a 7% yoy decline in gross floor area (GFA) of new home sales in 4Q24. This is a significant improvement from the 12.5% decline recorded in July-August 2024, reflecting the positive impact of supportive policies. For the full year, a 17% drop in new home sales is anticipated, though the easing of home purchase restrictions in Tier 1 cities and ongoing destocking initiatives are expected to provide much-needed support.
In terms of pricing, the stabilization of new home prices is projected, particularly in Tier 1 cities, following a 3% decline in August. This stabilization could potentially have a positive ripple effect on Tier 2 city property prices.
Benefits for Property Management Companies
The potential recovery in secondary property transactions is likely to benefit property management (PM) companies, particularly through their community value-added services. These companies, which include CR Mixc and PPS, have demonstrated excellence in interior design and real estate agency services. For CR Mixc, these services accounted for 6.1% of total revenue in 1H24. As the sector continues to recover, PM companies could see an increase in demand for these high-margin services, driving profitability in the second half of 2024.
Analysis of Listed Companies
CR Mixc Lifestyle (1209 HK)
CR Mixc Lifestyle stands out as a key player in the property management space, leveraging its scale and expertise in interior design and real estate agency services. With a strong track record of delivering value-added services, CR Mixc is well-positioned to capitalize on the expected recovery in secondary transactions. In 1H24, the company’s revenue from interior design and agency services constituted 6.1% of its total revenue, reflecting its ability to capture high-margin opportunities in a recovering market.
As policy implementation boosts transaction volumes and improves market sentiment, CR Mixc’s broad service portfolio is expected to generate significant revenue growth. The company remains a top pick in the property management sector, with analysts maintaining a bullish outlook due to its robust fundamentals and growth potential in the near term.
Longfor Properties (960 HK)
Longfor Properties has consistently been a market leader in property development, and the upcoming policy changes are expected to support its growth trajectory. As transaction volumes in primary and secondary markets recover, Longfor is poised to benefit from increased demand for new homes. The company’s diversified portfolio, spanning across Tier 1 and Tier 2 cities, places it in an advantageous position to capture gains from the stabilization of property prices and increased sales activity.
Moreover, Longfor’s ability to leverage its property management capabilities provides a dual growth avenue. The expected recovery in value-added services within the property management sector will likely complement its strong performance in property sales, ensuring steady revenue streams across both core business areas.
China Overseas Property Holdings (2669 HK)
China Overseas Property Holdings (COPH) is another major player in the property management space, known for its extensive portfolio and strong service capabilities. The company has successfully capitalized on the growing demand for value-added services, which include interior decoration and real estate agency offerings. COPH’s focus on expanding its VAS portfolio, particularly in secondary transactions, is expected to drive margin expansion in 2H24.
The company’s solid fundamentals, coupled with the anticipated benefits from government policy implementation, make it a standout performer in the sector. COPH is also expected to benefit from the increased funding availability under the PSL program, which will lower its cost structure and improve profitability in the destocking market.
Conclusion
The property and property management sector is on the cusp of a recovery, bolstered by increased transaction volumes and supportive government policies. As market fundamentals improve, listed companies like CR Mixc, Longfor, and COPH are well-positioned to capitalize on the favorable conditions. Investors should keep a close eye on these players as the sector gears up for a stronger 4Q24.
UOB Kay Hian
October 10, 2024
