China’s real estate sector continues to decline rain of bad news over the past few years. But investors now jumping into property stocks – after a rare good news – may have outdone themselves.
Shares of Chinese developers rose on Monday after data showing a week-on-week jump in property sales. According to data provider Wind, the number of property transactions in 30 selected cities increased by 43% compared to a week ago. This shows recovery long spring lockdown The bullish continues in Shanghai and other cities: transaction volume is now at the same level as at the same time last year. The Hang Seng Mainland Properties stock index rose 6.5% on Monday, although it is still more than half of its peak.
Pent-up demand probably contributed to the renaissance. This may last for some time as buyers who were not able to buy an apartment during the depth of the pandemic restrictions finally moved on. According to Nomura, investors are probably attracted by how cheap the sector has become — the property’s stock is up about two to three times this year’s expected earnings, though developers are also likely to lower their profit guidance. Huh.
But it is too early to tell if this is a permanent fix. For one, the economy is still struggling and the job market, especially for the younger generation, remains sluggish.
A growing discrepancy exists between housing markets in the largest and smallest cities. According to data from Wind, the so-called third tier cities missed out on the latest sales surge, with transactions last week falling below last year’s levels. According to government data, housing prices in tier I cities rose 3.5% year-on-year in May, while those in tier III cities declined by 2.2%.
This probably reflects the tight supply situation in large cities such as Shanghai and Beijing. Like other densely populated metropolises, finding new land to meet the demand is always challenging. Small-town markets where many developers—especially those now in deep debt trouble—hurt to expand during the boom days will probably be very hard to fix.
The interesting thing is that the commodity market also looks like this. doubting full recovery, Futures of iron ore and coking coal – used to make steel – both fell nearly 11% on Monday. The prices of steel products have also declined. The market feels that demand may not be as strong as expected due to asset rebound or infrastructure stimulus. Iron ore has now lost all its gains so far this year.
The recent housing sales figures represent a ray of hope for investors. But the woes of property developers are not over yet.
write to Jackie Wong jacky.wong@wsj.com
Copyright © 2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8