Goldman Sachs, Credit Suisse Lower China Property Forecasts on Tightening

Goldman Sachs Group Inc. and Credit Suisse Group Inc. cut profit and share-price estimates for Chinese property companies, citing a government clampdown on speculation to avoid asset bubbles.

Goldman Sachs, ranked second for Asian property coverage by Institutional Investor magazine, lowered its 2010 net income estimates by an average 13 percent and reduced earnings forecasts for the next two years by 25 percent, analysts led by Yi Wang wrote in a report today. Credit Suisse pared earnings- per-share estimates by as much as 15 percent for 2010 and 20 percent for 2011.

The MSCI China Real Estate Index’s 16 companies have slumped an average 23 percent this year as the central bank raised bank reserve requirements three times, while the government raised down payment requirements for second homes and banned loans for third homes. The slump in property stocks outpaced the 9.5 percent drop in the broader MSCI China Index that tracks mostly Hong Kong-traded stocks. The brokerages also slashed share-price targets by as much as 57 percent.

“In view of the revised tightening measures since mid- April, we turn more cautious on the property sector, particularly on transaction volumes for the remainder of the year,” Credit Suisse analysts led by Jinsong Du wrote in a report yesterday.

Falling Transactions

Property transaction volumes will tumble by about 15 percent on average this year from 2009, the brokerage estimated, keeping an earlier forecast that prices will slump 30 percent from current levels. There are signs the government may “adopt a more cautious stance on tightening” amid the European sovereign-debt crisis, according to the report.

China’s benchmark Shanghai Composite Index has slid 21 percent this year, Asia’s worst performer.

Goldman Sachs predicted volumes will fall 40 percent between May and December from a year earlier, while home prices will fall as much as 30 percent from current levels, according to a note today.

“A number of developers with funding gaps may face refinancing issues if banks tighten credit to developers further,” the Goldman Sachs analysts wrote. “We suggest investors avoid such secondary real estate brokers due to their high leverage to transaction volumes.”

Guangzhou R&F, Sino-Ocean

Sales of new homes in Shanghai fell to a five-year low last week as tightening measures took effect, property consultant Shanghai UWin Real Estate Information Services Co. said yesterday in an e-mailed statement. Sales from May 10 to May 16 fell 16 percent to 60,000 square meters from the week before, the lowest level for the same period since 2005.

Goldman Sachs cut its ratings for Guangzhou R&F Properties Co., Shimao Property Holdings Ltd., Sino-Ocean Land Holdings Ltd. and Yanlord Land Group Ltd. to “neutral” from “buy.” It downgraded IFM Investments Ltd., Shanghai Forte Land Co. and Shenzhen Overseas Chinese Town Holdings Co. to “sell” from “neutral,” while upgrading China Resources Land Ltd. to “buy” from “sell.”

Credit Suisse lowered its recommendation for Greentown China Holdings Ltd. to “underperform” from “neutral” and downgraded Evergrande Real Estate Group Ltd. and Hopson Development Holdings Ltd. to “neutral” from “outperform.”

Standard Chartered Bank also downgraded Sun Hung Kai Properties Ltd. and Sino Land Co. today to “in-line” from “outperform,” citing a “less visible outlook” for Hong Kong’s residential prices, according to an e-mailed note by analyst John Chan.

Guangzhou R&F, the largest developer in the southern Chinese city, fell 1.9 percent in Hong Kong trading, pacing a retreat among property stocks. Shimao declined 1.2 percent while Sino-Ocean Land lost 2.3 percent. Greentown China fell 2.2 percent while Hopson dropped 2.3 percent. Evergrande, China’s second-biggest developer by first-quarter sales, tumbled 6.6 percent.

To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net

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