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Jumat, 10 Juni 2011

China property bubble? don't think so, even less likely in Indo - CLSA

"Property bubble in China deflates. Price Drop in big cities spells trouble for global growth" WSJ frontpage news today

These kind of headlines surely catches attention especially at times when markets are soft. Strange how one minute there could be global inflation risk and the next is deflation. To make it simple, according to conventional wisdom, inflation is a rapid increase in the amount of money (including bank credit, deposits, and currency) that is not supported by a corresponding growth in the output of goods and services.

I would say that the FED, BOJ and to some certain ECB ain't going to stop printing + printing (the Fed's balance sheet expanded to a new record of $2.76 trillion in the week ended May 25th) and the same time I highly doubt their output is growing at the same pace. That is inflation, period.

The myth that there are 64 million empty apartments in China is central to the China bear case of some high profile investors.

CLSA is the only firm on the street with its own indepth research on this issue.

CRR visited more than 200 developments in 54 cities for this study; we talked to building management to get the real vacancy rate.
Our research indicates the true vacancy rate across all urban residential properties in China is 8%, or 16 million apartments.
Reasons to believe the problem has peaked: fewer investors buying at CRR monitored properties; combination of property tax and rising rental yields.

8% vacancy surely does not indicate a bubbly property market. Here in Indonesia, we are even at an earlier stage of the cycle.

Typical buyers especially for landed housing are end users, and first-time buyers; usually young family buying their first home. Our talk with the main developers who focus on the thriving west suburb of Jakarta, Serpong, a cumulative total of US$1.7bn (Rp14tn) worth of property was sold last year to mostly end-users. Mortgage to GDP is still less than 3%. No leverage = no bubble.

One interesting property play is Surabaya-based property company Ciputra Surya (CTRS IJ). The company just raised its NAV estimate by 18% from Rp2,386/sh to Rp 2,825/sh. Discount to NAV is 73% and the stock is trading at undemanding 11x 2012PER .

Ciputra Group, NAV revision

Ciputra Development (CTRA IJ) announced its latest valuation based on additional projects added and revision to CTRS valuation.
Total NAV for the group is Rp14.15tn. The NAVs are:

CTRA: Rp 933/sh (previously Rp871)
CTRS: Rp 2,825/sh (previously 2386)
CTRP: Rp 1,010/sh (previously Rp1,002)
Given CTRA group has been a laggard last year, even with recent rise in share prices, using company's NAV means:
CTRA still trades at 54% discount.
CTRS at 73% discount.
CTRP at 57% discount.

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