China Real Estate Insight

Chinese real estate market A fresh perspective was provided on the state of the Chinese real estate market Wednesday when China’s leading residential real estate developer reported its first half results. China Vanke sounded a lot like the National Association of Home Builders (NAHB) often does here at home, as it blamed banks and the government for its bad news. Truth be told, big lenders have opened up to more lending, just not in the mortgage market – at least based on the latest data out of Bank of America (NYSE: BAC).

New York real estateOur founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

America’s biggest builder, PulteGroup (NYSE: PHM), could not have said it any better, when China Vanke complained that government efforts to mitigate China’s once quickly expanding real estate bubble was hampering its operation. Vanke said hawkish Chinese Central Bank actions of the past, which it is now reversing, plus real estate industry focused initiatives to curb speculative investment have basically been effective. However, Vanke put it a different way, noting that the efforts have forced developers to lower prices (aka stopping the bubble) and slow investment. That’s not a bad thing if smaller poorly capitalized operators are acting speculatively. Vanke indicates that this could lead to a housing shortage in the coming year. Gee, that sounds familiar… I think I’ve heard the same thing from Hovnanian (NYSE: HOV) to D.R. Horton (NYSE: DHI) to you name the American builder… The new home market here at home may be short inventory, but the overall real estate market remains flooded.

Vanke indicated that smaller enterprises have reduced new construction. The developer said starts were down 15% in the second quarter, year-to-year, and its realized prices were down 11% in the first half. China has reason to be careful though, as real estate development has contributed 10% to GDP over recent history. Some have reported signs of life among solid market drivers, with first-time home buyers and move-up buyers picking up activity in the second quarter.

There is risk that a shaken Chinese authority might ease restrictions too aggressively if Chinese GDP slows too much for comfort. If that happens, then perhaps fear of collapse will drive eventual catastrophe, just like what happens here every three years or so.

Chinese shares were hardly shaken Wednesday, with the Shanghai Shengzhen CSI 300 up just fractionally and the Hang Seng down fractionally. In later trading, American traded China focused portfolios looked better, with the iShares FTSE China 25 Index (NYSE: FXI) up about 0.2% after a better start. The Guggenheim China Real Estate (NYSE: TAO) security better reflected the real estate news back home, as it declined 0.2% on the day. In comparison, American shares were slightly higher, with the SPDR S&P 500 (NYSE: SPY) up fractionally and the SPDR S&P Homebuilders (NYSE: XHB) up 0.8% Wednesday.

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