The number of property transactions in 30 selected Chinese cities rose 43% from a week earlier, according to data provider Wind; residential construction in Nanning.
Photo: Cfoto/Zuma Press
China’s real-estate sector has endured a constant barrage of bad news over the past couple of years. But investors jumping into property stocks now—after a rare piece of good news—may have gotten ahead of themselves.
Shares of Chinese developers soared Monday after data showed property sales jumping week over week. The number of property transactions in 30 selected cities rose 43% from the week before, according to data provider Wind. That shows the recovery from protracted spring lockdowns in Shanghai and other cities is continuing apace: the volume of transactions is now at a similar level around the same time last year. The Hang Seng Mainland Properties stock index rose 6.5% Monday, though it is still more than half off its peak.
Pent-up demand probably contributed to the renaissance. That may last for a while as buyers who weren’t able to purchase an apartment during the depths of the pandemic restrictions finally sally forth. Investors are probably attracted by how cheap the sector has become—property stocks trade at about two to three times this year’s expected earnings, though developers are also likely to reduce their profit guidance, according to Nomura.
But it’s still too early to tell if it’s a sustainable recovery. For one, the economy is still struggling and the job market, especially for the younger generation, remains sluggish.
An increasing discrepancy exists between housing markets in the biggest and smallest cities. So-called third tier cities missed out on the latest sales jump, with transactions last week still below last year’s level, according to data from Wind. Housing prices in first tier cities rose 3.5% year on year in May while those in the third-tier cities fell 2.2%, according to government data.
That probably reflects the tight supply situation in big cities like Shanghai and Beijing. Finding new land to keep up with demand in densely populated megacities is perennially challenging. Smaller city markets where many developers—especially those now in deep debt trouble—rushed in to expand during the boom days will probably find it much harder to recover.
The commodity market also seems to be casting doubts on a full-blown recovery. Futures of iron ore and coking coal—used to make steel—both fell around 11% Monday. Prices of steel products have also dropped. The market seems to think demand from a property rebound or infrastructure stimulus might not be as strong as expected. Iron ore has now lost all its gains so far this year.
The recent housing sales data represent a glimmer of hope for investors. But property developers’ woes aren’t nearly over yet.
Write to Jacky Wong at [email protected]
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