Date: 3 October 2024
Broker: MIB Securities (Hong Kong) Ltd

Overview of Longfor (960 HK)

Longfor is highlighted as one of the key players in the Chinese property market, particularly benefiting from recent supportive measures announced by the government aimed at stabilizing the property sector. Its mall operations and exposure to Tier-1 cities position it well for future growth.

Government Easing Measures in Tier-1 Cities

As of 30 September 2024, Tier-1 cities like Shanghai, Guangzhou, Shenzhen, and Beijing introduced several easing measures to counter the downturn in the property market. These measures included:

1. Home Purchase Restriction Loosening: Full removal in Guangzhou, with partial easing in cities like Shanghai, Shenzhen, and Beijing.
2. Down Payment Reductions: Reduction in the down payment ratios for both first and second homes, though second-home purchases still required higher down payments than the national average.
3. Tax Relief: A reduction of the value-added tax (VAT) for secondary homes, exempting VAT (5%) for homes held for over two years in Shanghai and Shenzhen.
4. Home-Selling Restrictions Removed: In Shenzhen, all home-selling restrictions were lifted.

Impact on Longfor (960 HK)

Longfor, being a major mall operator, stands to benefit significantly from these measures, particularly through the expected increase in consumer spending due to mortgage rate cuts. The lower mortgage rates will help households save more, potentially boosting foot traffic and revenue in malls operated by Longfor.

Property Sector Rally

The property sector in China, as reflected by the SSE Property Index, rallied by 34.3% since its low on 18 September 2024. This rally was driven by distressed valuations of privately-owned enterprises (POEs) and state-owned enterprises (SOEs), signaling increased investor confidence. Longfor, as one of the preferred mall operators, has positioned itself to take advantage of this market recovery.

Strategic Positioning in Tier-1 Cities

Longfor’s high exposure to Tier-1 cities, where the easing measures are being implemented, further enhances its prospects. These cities are considered prime locations for property investment, and Longfor’s presence in these urban centers gives it an edge in capitalizing on the market’s recovery.

Conclusion

Longfor is well-placed to benefit from the current recovery in China’s property sector. The easing measures introduced in Tier-1 cities, combined with mortgage rate cuts, provide a favorable environment for Longfor’s mall operations, making it a top pick for investors looking to tap into the revival of the property market in China.