Chinese real estate stocks are racing ahead of their U.S. counterparts, but analysts are split over whether the rally can continue.
Chinese firms accounted for nine of the 10 best performing stocks in the Bloomberg World Real Estate Index so far this year. Firms like China Evergrande Group — which is the country’s largest homebuilder by sales and is battling for control of the country’s second largest builder, Vanke — and Sunac China saw their stock rise more than 70 percent.
Still these firms face a tougher environment now that several major Chinese cities have imposed restrictions on home purchases in a bid to cool the property market.
“Investors will be more selective in buying the stocks this year,” BNP analyst Wee Liat Lee told Bloomberg. “Large developers will gain market share from the smaller players. You need to be a very big developer with diversified exposure across different cities in China to thrive amid tougher curbs.” Debt is another issue: Both Sunac and Evergrande are highly leveraged.
Other analysts argue that even if the market slows, the continued flow of money into Hong Kong’s Stock Market Could Still Drive up valuations. “Many overseas funds argued that they’re not comfortable with these aggressive firms,” Citigroup analyst Oscar Choi told Bloomberg. “But with Chinese investors rising as a new source of purchasing power, these bears don’t have too much say.”
The Chinese government won’t introduce a property tax this year, despite the belief that it would help curtail the country’s soaring home prices. Dalian Wanda Group CEO Wang Jianlin warned last September that China is now “facing the biggest bubble in history.” [Bloomberg] — Konrad Putzier