Xinyuan Real Estate (XIN)

Volibolero (71.70) Submitted: 10/14/2008 10:34:57 PM : Start Price: $2.32 XIN Score: +87.46

Currently, I live in China. Homes are typically purchased with 30% down. In my opinion, there is very little "artificial demand" created by easy money or leverage in the middle income housing market here. As a massive population shift is currently underway in China from rural to urban... housing demand is real, very large, growing fast, and difficult to stop. Ultimately, I am reasonably confident that this source of demand (internal Chinese population migration) is very much uncorrelated (in the long term) with other sources of return currently found in your portfolio, making XIN an ideal diversification addition. However, in the short term, all correlations converge to 1, as fear trumps any other emotion in times of crisis. This creates an opportunity for the disciplined contrarian investor who can now buy a fast growing, operationally profitable firm for price just above cash per share and expected earnings per share and well below book value... in one of the largest future markets in the world. Also, remember that Sam Zell (one of the most successful real estate investors in recent times) is a major equity investor in XIN and has already successfully implemented this "high turnover, assembly-line, middle-income real estate development" strategy before...Homex in Mexico and Gafisa in Brazil. Here is an old article that discusses both: http://www.reuters.com/article/companyNewsAndPR/idUSN2520346020070525. Finally, institutional coverage and investment is currently minimal, but as more money targets China in the future, XIN will surely receive more attention and investors. XIN has simply been pulled down recently, as anything related to China or Real Estate has been destroyed by the unwinding of the housing market bubble and China stock market bubble, but not all homebuilders are the same... and not all Chinese stocks are the same. For long term contrarian thinkers, XIN is a WIN at this price.