China's Real Estate Rally is in full speed ahead.
E-House Sales ‘Very Strong’ as China Housing Recovers (Update1)
By Allen Wan
June 5 (Bloomberg) -- E-House (China) Holdings Ltd., a Shanghai-based provider of real estate services, is recording “very strong” property sales after volume doubled in the first quarter, Chief Financial Officer Li-Lan Cheng said.
“The rebound is picking up speed,’ Cheng said in a phone interview from New York. “Transaction volumes have been sequentially stronger every week because of lower prices, favorable government policies and pent-up consumer demand.”
An improving housing market adds to evidence that Premier Wen Jiabao’s 4 trillion yuan ($586 billion) stimulus package is reviving growth in the world’s third-biggest economy. China’s manufacturing expanded for a third month in May, the government said June 1, while lending and retail sales have surged.
E-House reported a 130 percent rise in first-quarter transaction volume from a year earlier, Cheng said. Sales in April and May were “phenomenal” and also doubled from last year’s levels, he said.
Property prices in China’s biggest cities will remain “flat” in 2009 because of excess inventories, Cheng said.
“China’s economy’s is still struggling because of exports,” Cheng said. “The government is making strong efforts to make up for any shortfalls.”
The country’s economy expanded 6.1 percent in the first quarter, the slowest pace in almost a decade, after exports collapsed because of the global recession. Overseas shipments plunged 22.6 percent in April from a year earlier. China’s government is forecasting 8 percent growth this year.
Real Estate Rally
The China Se Shang Property Index of 24 real estate companies has doubled in 2009, helping the Shanghai Composite Index to post a 52 percent gain, the fifth-best performance among 91 equity indexes tracked by Bloomberg.
Cheng said the rally for the nation’s property companies is “justified” as the economic stimulus plan and lower interest rates boost the real estate industry. The central bank reduced interest rates five times in the final four months of last year.
“Valuations may appear expensive but the market is anticipating improving transaction volumes and earnings,” he said. “The stock prices are justified as we’re seeing a strong rebound.”
E-House American depositary receipts have rallied 93 percent in 2009. They gained 7.5 percent to $15.63 in New York trading yesterday.
“E-House is a play on a rebound in China’s property market,” said Jeff Papp, senior analyst at Lisle, Illinois- based Oberweis Asset Management Inc., which manages $700 million including China stocks.
Hao Hong, a New York-based analyst at Brean Murray Carret & Co., said he is concerned about a “bubble” in China’s property market because of loose lending practices and rising unemployment in the country.
The China Banking Regulatory Commission said June 1 in its annual report that real estate is among industries that may default on loans, causing growing pressure on Chinese banks.
“There is a bit of froth in the market,” Hong said in a phone interview. “It’s a monetary phenomenon because of so much liquidity in the system. You will see bad loans surging in 2010.”
Cheng said China’s property market isn’t in danger of becoming a bubble because prices have remained stagnant and the increase in sales has been mostly in low- and moderate-income housing.
To contact the reporter on this story: Allen Wan in New York at email@example.com Last Updated: June 4, 2009 16:34 EDT