#Real Estate — 14.03.2019

[VIDEO] Is the slowdown in China’s physical property market a concern?

Grace Tam

There are signs of slowdown in China's physical market even as China's property stocks and bonds have seen a strong run year-to-date. So where's it headed?

  • Both China property stocks and bonds have seen a strong run year-to-date despite signs of slowdown in the physical market.
  • Despite a more challenging physical market environment, it is unlikely to have significant negative impact on the economy and cause financial distress in developers.
  • We remain positive on the China property stocks and bonds in the medium-term, although the newsflow on property tax will affect sentiment in the near term. 


Regarding the China property market, despite the slowdown in the physical market, you can see that the China property stocks and also China property bonds have seen a very strong performance year to date, with the key reasons such as

First,  after last year's significant corrections, valuations became very attractive;

Secondly, for some of the local governments in China, they actually announced easing measures in the property market at the city level.

Thirdly, about the US Federal Reserve, as they now have a more dovish stance in terms of monetary policy, this actually has been benefiting the carry trades.

And lastly, regarding the Chinese bond market, the yield differential between the onshore bond market and the offshore bond market are still large, which have been attracting a lot of inflows into the offshore dollar bond markets.

Our base case scenario for the property market is that we still expect some slowdown in terms of the physical market, but it is not going to have a severe downturns and we will remain positive on the property stocks, as well as the property bonds.

For example, the mortgage rates and the funding cost actually have been declining.

This is actually supportive to home buyers as well as the property developers.

And also, despite the very strong rebound, actually when you look at the valuation of property bonds and property stocks, they remain pretty much at reasonable levels, as well as, the dividend yield and the bond yield remain pretty much attractive, at around 6%.