China’s Long-Suffering Property Stocks Aren’t Yet a Buy

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Shares have gained momentum in recent days on signs of lower selling levels in major cities. But extrapolation to the more comprehensive national asset market is risky.

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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.

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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%.

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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.

Interestingly, the commodity market is also casting doubts on a 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.

Jacky Wong at [email protected]

Credit: www.Businesshala.com /

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