 Strong long-term growth potential — Our analysis shows that the China property
sector has substantial long-term growth potential as the economy continues to
expand. In 2006, property sales in China represented only about 12% of GDP,
way below an historical average of 26% for Hong Kong (and 23% currently).
 Government measures should mean healthier growth — Analysing the measures
of the past 3 years, we see 5 key intentions: 1) Ensuring adequate housing
supply; 2) Protecting the banking system; 3) Preventing a market overheating;
4) Containing speculation; and 5) Controlling land resources. None of these are
aimed at stunting end-user demand. Instead, the outcome should be healthy
industry consolidation.
 Growing share of a growing pie — On our estimates, the major 22 developers in
China had a total market share of only 4.2% in 2006, suggesting a lot of room
for the strong players to expand amid ongoing industry consolidation.
 Trough NAV discount narrowing significantly— The sector\'s trough NAV
discount narrowed from 59% in 2005 to 42% during the tightening period of
2006. We believe this is due to the market\'s better understanding of the sector
and more mature and effective policy-making by the central government. We
believe that this NAV discount trend will continue.