August 2016 Housing Price Data for Xinyuan Real Estate’s Markets

China Index Academy (a research unit of Soufun) released its monthly report of new home prices in 100 top Chinese markets (LINK).  On a national basis average selling prices rose 2.2% for the month and 13.8% from one year ago.

Data for Xinyuan’s markets are in the table below:

XIN Markets 090116

The Central China markets have been steady performers.  These cities have strong economic potential supported by good transportation infrastructure and labor supply.  The Xinyuan brand is well-known in this region and the company has phased development plans in cooperation with local governments enabling a predictable supply and price for future land acquisitions.  The Company recently disclosed new land acquisitions in Zhengzhou (LINK) where its projects have been consistently profitable (LINK).  In February 2016 the company raised its ownership in the Xi’an project from 50% to 65% at a bargain price.  August price strength in Jinan and Zhengzhou bodes well for Xinyuan’s 3Q16 earnings.

The Tier 1 cities have been China’s strongest long-term markets.  The cities are crowded and expensive, but offer the best jobs and cultural environment.  Participation in these projects benefits the Xinyuan brand image.  The company recently acquired a new site in Beijing with excellent potential (LINK).

The Jiangsu Province cities close to Shanghai have been very strong.  These areas offer many of Shanghai’s advantages (good job prospects and cultural environment), but with a more comfortable and affordable lifestyle.  Expanding transportation links provide easy access to Shanghai by high-speed rail and subway (from Kunshan).   Xinyuan recently acquired a new site in Kunshan (LINK) and in the company’s 1Q conference call CFO George Liu said land prices in the area may already be 50% higher than what Xinyuan paid (LINK).  Early indications show strong buying interest at this project (LINK).  High current land prices make it challenging to replace the Suzhou Lake Royal Palace project as it nears completion (67% sold at 6/30).

Xinyuan’s other Chinese projects are in cities with high economic growth, but where real estate markets suffered from a short-term oversupply of inventory.  Xinyuan’s 2Q earnings report showed a significant increase in sales volume in both Chengdu and Changsha and a favorable price trend as well.  The vacation market of Sanya has been weak, perhaps due to rising Chinese interest in international travel.  Disappointing sales at Xinyuan’s project there may be due to inexperience in marketing of a higher-end leisure property which is different from the company’s main emphasis on middle class homes.

Note that “Xinyuan Inventory” by city was derived from the table in Xinyuan’s earnings report titled: “Real Estate Project Status in China” (LINK)

Note that Xingyang is classified as a small city, but is effectively an outlying area of Zhengzhou.

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