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Townization Benefiting Real Estate Industry, Wanke and Evergrande Gaining Initiative

BEIJING, Jan. 13, 2013 /PRNewswire/ -- China's real estate market is recovering gradually as the new townization, which is called "the greatest development potential of China in the forthcoming decades" by the Central Government, has been elevated to a national strategy. Faced with the development opportunity brought by the new policy of townization, Chinese real estate enterprises are exploring ways of winning out on the market and leading the industry.  

Relevant statistics show that, in the upcoming 10 years, China's new demand for residences (including indemnificatory apartments) is about 15.7 billion m2, including over 5 billion m2 to meet the demand of first-time home buyers in the newly increased urban population and the home improvement demand of existing population and nearly 6 billion m2 to meet the demand of old housing replacement and upgrading. The progress of the townization process will provide a broad development space for the future residential market.

This means that, under the general trend of new townization, the growth of China's real estate demand will be the fastest around the world in the future ten years and rigid demand will become the primary drive. 

Currently, the market demand of tier-3 cities has yet to be fully tapped and these cities will be the "major battlefield" of real estate markets. According to Mr. Li Zhong, General Manager of Regal Lloyds International Real Estate Consultants Co. Ltd., as the conflict between population and resources gets more prominent continuously in the extra-large cities represented by Beijing, Shanghai, Guangzhou and Shenzhen and the growth of urban population has begun to hit the ceiling, townization that features "sporadic development" will bring the continuous increase of urban population and the concomitant demand for housing improvement.

The word "sporadic" here means provincial capital cities like Kunming, Fuzhou and Hefei and the fairly developed tier-3 cities like Jiaxing and Shaoxing. Under the development mode of new townization, the demand for improvement of residential conditions unleashed during the townization in a large number of central cities not in a traditional sense is identified as the new performance growth powerhouse of real estate enterprises.

The large real estate enterprises are cutting up the "big cake" of tier-3 market. Among them, Wanke, Merchant Property and Evergrande may become the biggest beneficiary of the new townization policy thanks to advanced layout. Data show that Wanke has increased its land projects by 23 since Q3 last year, which occupy about 1.48 million m2 of land according to the calculation based on equity and are mostly located in tier-3 cities, including Xuzhou, Guiyang and Putian. In the first 3 quarters of 2012, Merchant Property obtained 970,000m2 of land, a sharp rise from the same period of the previous year, which is mostly concentrated in tier-2, tier-3 and even tier-4 cities.

The performance of Evergrande is eye-catching. As a real estate enterprise of China that is the earliest to implement a strategy for tier-2 and tier-3 cities, Evergrande now has the widest layout in tier-3 cities. This strategy has enabled it to take a leading position on the market immediately when the implementation of the new townization policy started. In 2012, its sales increased by 14.8% to 92.32 billion yuan, 98% of which was sourced from the projects in tier-2 and tier-3 cities, obviously benefiting from the new townization policy. Recently, Bank of America Merrill Lynch noted that Evergrande would remain the biggest beneficiary of urbanization in 2013 and expected that its sales under contract would increase by 20% in 2013 to 110 billion yuan, thus maintaining its "buy" rating and raising its target price from 4 HKD to 5.75 HKD.

SOURCE Sina Leju

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