CapitaLand acquires two residential sites in China

CapitaLand's CapitaValue Homes (CVH) unit will acquire two residential sites in Guangzhou's Panyu District and Shanghai's Pudong District for S$62m and S$46m respectively. We believe that the market would likely be neutral to slightly negative on these acquisitions due to uncertain conditions in the Chinese property market and the relatively small quantum involved.

The Guangzhou site (238k sqm GFA) will include a bus terminal and 53k sqm of social housing to be handed over to the government when completed. CVH will take a 95% stake in the Shanghai site (90k sqm GFA). In total, both sites will yield around 2,400 value homes (Guangzhou -1,500, Shanghai - 900) with an average size of 90 sqm each. Note that the value homes on both sites would also be subjected to buying restrictions; CVH is targeting, however, first-time buyers who are unaffected by restrictions.

Construction is expected to start 2Q12 and will take 2-3 years to complete, and construction cost is estimated to be RMB 2,200 - RMB2,400 psm of construction floor area. Launch prices are projected to be RMB 9,000 psm for Shanghai and RMB8,000 for Guangzhou. We estimate an accretion to RNAV of 1.5 cents which lifts our fair value estimate marginally up to S$2.92 per share from S$2.91 per share previously (20% discount to RNAV).