Translated by Andrew Vanburen from a Chinese-language piece in Securities Times
CHINA’S BENCHMARK SHANGHAI COMPOSITE Index is down nearly 16% from a year earlier.
However, it hasn’t been nearly as rough a ride for property developers.
June 9 not only marked an important day for the EU, with its fourth biggest economy Spain getting a 100 billion euro banking bailout – but closer to home it was the day investors got an extended peek at the vitality of Mainland China’s real estate sector for the first five months of the year.
According to the National Bureau of Statistics, although property floorspace sales were down during the January-May period across the country, the rate of decrease continued to shrink compared to earlier timeframes.
This has helped boost confidence among investors targeting the sector, and put the sector as a whole in a more upbeat status looking forward.
As for listed property plays in Shanghai and Shenzhen, they continue to outperform other sectors, with the property sub-index which tracks developers seeing a 2.1% leap on Monday alone.
Furthermore, Guosen Securities issued an industry report this week saying that a diverse range of economic indicators are pointing to further upside for Mainland China’s property sector stocks.
In the January-May stretch, property sales across China fell 12.4% year-on-year to 289 million square meters.
However, industry watchers took some cheer from the fact that the five-month slowdown was one percentage point better than that witnessed during the January-April period.
Measured by revenue, property sales nationwide between January and May registered a slightly smaller decline, dropping 9.1% year-on-year to 1.69 trillion yuan.
However, this was a marked improvement on the 11.8% fall seen in the first four months.
In May alone, floorspace and revenue sales both declined by a narrower margin year-on-year, a result which was in line with more sanguine market expectations.
“In our opinion, sales are continuing to firm up, and this is helpful to both share prices for developers as well as providing a boost of confidence to the property market itself,” Guosen added.
More Investment, Fewer Homes
On the brick-and-mortar investment side of things, the PRC property market looks even more vibrant.
In the first five months, total new property investment across the country rose nearly 19% year-on-year to 2.22 trillion yuan.
Broken down by categories, residential real estate investment rose 13.6% to 1.51 trillion yuan, accounting for 68% of the entire sector's new capital inflows.
Newly built housing units were down slightly in the first five months, falling 4.3% year-on-year to 729 million square meters.
Therefore, with more money chasing less new living space, it is no wonder that developers’ shares have been doing so well of late, as those looking for new rooves over their heads are forced to open their wallets even wider.
This dynamic will be very interesting as it progresses, and investors should keep it at or near the top of their “must monitor” situations.
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