Emerging market sector of the day: Chinese real estate

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Chinese real estate prices increased the most in 18 months in November, reinforcing the signs that the Chinese economy ( FXI , quote ) is set to rebound next year.

[caption align="alignright" caption="Housing in Shanghai"] Image courtesy sanfamedia.com: http://www.flickr.com/photos/kudo88/ [/caption]

According to data compiled by the National Bureau of Statistics, housing prices rose in 53 of the 70 cities included in the survey, the most in a year and a half. While some smaller cities lead the way, prices in important real estate markets like Shanghai, Beijing, and Guangzhou all rose month-over-month.

The growth in the Chinese real estate sector comes in spite of curbs implemented by the government to prevent a bubble from forming. By imposing such measures as property taxes in cities like Shanghai and Chongqing, as well as an increase in mortgage down payment requirements and restrictions against individuals buying multiple properties, the government prevented the Chinese real estate bubble from spiraling out of control.

However, because, until very recently, Chinese equities had been out of favor with investors, as well as the lack of a deep and liquid bond market, Chinese real estate maintains its place as a primary investment vehicle for many wealthy Chinese.

With the Chinese economy showing further signs of rebounding in its manufacturing and retail data, it's a reasonable assumption that the proverbial rising tide will lift all boats, including real estate. While the recent surge in equities will be welcomed by Chinese investors, it's unlikely that inflows into the stock market will cause downward pressure on real estate prices.

Developers and analysts have expressed their optimism over the Chinese real estate sector for 2013, with Alan Jin, a Hong Kong-based property analyst at Mizuho Securities Asia Ltd. claiming that both sales and home prices could increase by 10% year-over-year.

With Chinese real estate and the economy as a whole rebounding, there are a number of opportunities in the sector. Given our preference for United States-listed Chinese firms , online real-estate firm SouFun ( SFUN , quote ) could see some further near-term upside. However, like with any mid-cap Chinese stock, stocks in this segment are inherently risky and should be treated as a speculative position.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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