【金融市场】China’s Property Prices Rebound, but Stocks Tell Another Story

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收藏 2016-06-07

source from：WSJ
MARKETS HEARD ON THE STREET
China’s Property Prices Rebound, but Stocks Tell Another Story
Investors should listen to the stocks

By JACKY WONG
Updated June 7, 2016 1:28 a.m. ET
0 COMMENTS
China has had a real-estate boom lately, but one wouldn’t know it by looking at property-developer stocks. That disconnect is a warning to investors.

Housing prices in China are up an average 11% since early 2015. The so-called tier-one cities such as Beijing, Shanghai and Shenzhen have led the gain with a 30% surge in that time. Recently, the rally has spread to the slightly less-big tier-two cities, where prices are up 5% so far this year.

Shares of home builders, however, haven't showed the same optimism. A benchmark of mainland-listed property stocks has fallen 20% this year, a worse showing than the broader market. In Hong Kong, shares of the biggest Chinese developers have dropped 14%.

Many Chinese developers are now trading below their book values in Hong Kong, where the market is freely accessible to foreign investors. These property companies in general trade at lower valuations than those listed in Shanghai and Shenzhen.

This may mean a massive buying opportunity. But, more plausibly, the stock market is hinting that the current property recovery is unsustainable. The rapid rise in property prices has already led to government policies to restrict home buying in some cities. The clampdown will likely expand if housing prices continue to surge.

Developers haven’t benefit much from the housing rally anyway. Average net profit margin for mainland-listed developers fell to 7.9% in the first quarter, from 10% at the end of 2014, despite the higher prices. Part of the reason: Homebuilders are still sitting on a large stockpile of unsold homes in China’s many smaller cities.

And the profit situation may worsen still. Land prices, especially in top cities, have risen greatly—in some cases outpacing average housing prices nearby—which will squeeze developers’ margins further. The housing glut is set to intensify in tier-two cities, where construction starts have picked up sharply. Deutsche Bank expects new starts to rise 33% in tier-two cities this year, while staying flat for the biggest ones.

Midsize developer Sunac China, for instance, had a gross profit margin of 12% last year, down from 17% in 2014. Last month it paid a record price for a piece of land in Shanghai. Its shares, traded in Hong Kong, are off 15% this year.

Then there’s leverage. Total debt issuance by Chinese developers in the first five months was three times that of a year earlier, according to Dealogic. Some of the new debt is being used to refinance costlier offshore loans taken out in the previous building cycle a few years ago. But a substantial part is new borrowing. The sector’s net debt-to-equity ratio rose to 101% in first quarter, from 89% by the end of 2014, according to Wind Information.

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Net debt at Greenland Holdings, one of China’s biggest developers, swelled by 16% in just the first quarter, rising to more than four times equity. Moody’s downgraded the company’s rating to junk last month. Greenland’s Shanghai-listed shares have fallen nearly 30% this year.

Prices may be rising in China, but property investors would be wise to take the warning from the stock market.