UBS: Mainland industrial and commercial land renewal policy removes valuation uncertainty, Hong Kong developers have a big impact

The Zhitong Finance App learned that UBS released a research report saying that Guangzhou and Shanghai have successively announced formal policies for the renewal of commercial and industrial land use rights, making this the first time in the mainland that the renewal rules have been systematically stipulated. The policy stipulates that the renewal price is not less than 70% of the base land price, and the maximum renewal period is 20 years. UBS believes that this move has eliminated the uncertainty of commercial property valuations, REITs spin-offs, and physical asset transactions, and has a positive impact on the market.

The report points out that commercial land concessions are generally 40 years, and when the remaining period is less than 20 years, asset valuation depreciation will accelerate. Since Hong Kong developers entered the mainland market earlier, their property holdings are older, so the impact is greater. UBS estimates that among the developers covered, the average remaining land period of about 9% of the total asset value (GAV) of investment properties is less than 20 years. Among them, Hang Lung Properties (00101) accounts for the highest share, reaching 35%; Wharf Group (00004) accounts for 11%; Swire Properties (01972) accounts for 10%; Kerry Properties (00683) accounts for 6%; and Lingzhan Real Estate Fund (00823) accounts for 5%.

According to UBS analysis, the mainland REITs market already has 48 commercial properties. The data shows that the capitalization rate is highly negatively correlated with the remaining rental period of the property. The bank believes that developers can circulate capital through REITs or property transactions. If the increase in valuation can cover renewal costs, it will have a positive impact on stock prices. As an example in the report, Tianjin Joy City is estimated to increase the property valuation by about 18% by renewing the land term ahead of schedule and extending the land period by 16 years.