Real estate special (July No. 3): quick, quick, slow (ish)

REAL ESTATE in H1 - JANUARY to JUNE:
• Total investment: Yuan 2.625 trillion ($405 billion) i.e.+32.9% year on year (+34.6% in May)
• Source of Funds: Yuan 4.1 trillion i.e. 21.6% (+18.5% in May) including: 27% increase in deposits; 8% fall in mortgages; and 75% increase in foreign investment
• Sales (by value): Yuan 2.5 trillion i.e. +24.1% (+18.1% in May)
• Sales (by volume): 444.2 million square metres i.e. +12.9% (+9.1% in May)
• Floor space newly started: 994 million m2 i.e. +23.6% yoy (+23.8% in May)
• Floor space under construction: 4.1 billion m2 i.e. +31.6% yoy (+32.4% in May)
• Property Outlook Index in June: 101.75 (103.2 in May)

- included in the above:
RESIDENTIAL in H1 – JANUARY to JUNE
• Total investment: Yuan 1.864 trillion i.e. +36%
• Sales (by value): Yuan 2.1 trillion i.e. +22.3%
• June alone sales (by value): Yuan 499.2 billion i.e. +31%
• Sales (by volume): 398.1 million m2 i.e. +12.1%
• Floor space newly started: 769 million m2 i.e. +20.7%
• Floor space under construction: 3.1 billion m2 i.e. +30.0% yoy

The first thing you notice is the sheer scale of the numbers; and for those raised on imperial measurement you have to multiple 1 square metre by 10.76 to see how much it is in square feet. As with all (damned) statistics right now from China there is succour for both the bulls and the bears. The latter seized on the easing of the rate of increase in total investment from 34.6% in the first five months of the year to 32.9% in the first half (to $405 billion); which they said reflects Government constraints on the Sector.

Of the seven metrics above, too, four showed an easier rate of growth in H1 versus the first five months, albeit none dramatically so; and the gains were still robust in extremis (see above).

On the positive side were Sources of Funds (+3.1 percentage points in H1 versus first five months), property sales by value (+6 pp) and property sales by volume (+3.8 pp). The three additional laggards were floor space newly started (down 0.2 pp) and floor space under construction (down 0.8pp). In addition, and the most significant, in my view, was the Property Outlook Index. It was at 101.75 in June versus 103.2 in May. This puts it back to last December’s level and compares with an average for the last nine published months of 102.9 (with the mean about the same).

No such worries in the residential sector, though, where sales by value soared 22% in the first half and by a staggering 31% in the month of June alone (apologies, too, that I can not find the comparative five months data for the residential sector on China's National Bureau of Statistics website).

Elsewhere, China Daily reported very positive trends in both prices and transactions (in more than two thirds of the 35 major cities for which it had data) in the early days of July (4 through 10). However, SouFun said that house prices eased in eight of the Country’s 10 biggest cities during the month of June, albeit that, nationally, prices rose 0.4% in the same month.

The strong growth in residential volumes is said to reflect developers being more flexible on price and location i.e. moving to smaller cities, outside of Tier 1. In the second half, too, the beginning of the Government’s push to provide the first 10 million affordable houses from its five year target of 36 million is expected to have a positive impact.

In other news, office vacancies in Beijing’s Grade A market fell to a two decade low at the end of Q2, according to JLL; with rents, unsurprisingly heading towards a record peak. The overall vacancy rate declined 2.6 percentage points, quarter on quarter, to 8.3 %. In addition, Savills said much the same with their Q2 vacancy rate of 5.9% for the same market (down 2 percentage points in the quarter). Similarly, it also said that rents increased 12.6% to Yuan 241 Yuan ($37.25) per square metre in Q2. And as David Hand, Head of Investment in China at JLL, said “we see no let-up in this trend for the foreseeable future, thus making Beijing a truly compelling investment market”.

Rational man, who you have met before, would say that there is an incipient slow down in China’s real estate market (and I agree); and his favourite statistic is the Property Outlook Index (like me). But like the economy, a soft landing beckons, particularly given the very robust trend in housing volumes and office vacancy rates such as those being experienced in Beijing.

“Dance like nobody is watching” - Anon


SHANGHAI COMPOSITE
Today: +1.48% to 2,795.48 at close
This week: -0.08%
June: +0.7%
Q2: -5.7%
YTD: -0.4%
Year ago: +14.1%

HANG SENG:
Today: +1.22% to 21,926.90 at close
This week: -3.52%
June: -6.4%
Q2: -4.8%
YTD: -4.8%
Year ago: +7.3%

OIL FUTURES: $96.87
GOLD FUTURES: $1573.60
(new ‘immediate delivery’ high of $1577.40 on 2 May 2011)
EURO/$ SPOT: 1.4044