Recent developments in the Chinese real estate industry show that stock values for a number of leading development companies are on an uptick. However, financial experts say it’s still too early to call as to whether this is the beginning of better times for China’s housing sector.
Stocks of major real estate firms surged upward last week following the announcement of measures encouraging banks to give the housing sector a helping hand on top of other support measures set in place at the beginning of this month.
Country Garden, the country’s largest developer in terms of sales, saw the value of its shares doubled earlier this month. Rival company Longfor, on the other hand, saw its share prices rise by as much as 90%.
Related industries have also benefited from a rally in real estate stock prices. Iron ore futures, in particular, were up by 16% as of the middle of this month, their growth attributed to the again surging need for steel and other materials for use in the construction sector.
But experts warn that market prices have, so far, deviated from the fundamentals; indeed, the current situation is one that shows strong expectations in a less than sound reality. Ferrous metals analyst Sheng Mingxing of the Nanhua Research Institute opines that any real growth in the real estate sector will be measured by whether or not developers can complete and deliver residential projects come the spring building season which covers the months of March and April.
The aforementioned financial measures banks are supposed to offer development companies include equal treatment for both state- and privately-owned developers, the clearer delineation of loan extensions, and support for bond issuance.
Financial analysts, however, see these measures as little more than temporary relief. According to Samuel Hui, director for Asia-Pacific corporates at Fitch Ratings, this only helps developers meet less in the way of debt repayment needs. Hui opines that what is truly important is an overall improvement in the home / real estate sales market, especially because potential homebuyers will only go with developers who can actually finish construction and deliver completed homes to their clients.
This is understandable: in the first half of this year, Chinese homebuyers stopped paying their mortgages on apartments and other residential initiatives whose construction has been delayed. It’s an occurrence that is changing the face of the Chinese residential real estate scene as, previously, homes are sold well ahead of construction to give developers ample cash flow for construction.