China's Real Estate Market Is Hot
06/05/2013 6:30 am EST
Focus: REAL ESTATE
US real estate is not the only game in town, and despite cries of a popped bubble, the numbers are still good in the Red Dragon, says Tony Sagami of Uncommon Wisdom.
The US real estate market certainly seems to be recovering, with home sales now hitting their highest level in more than three years. But other parts of the world are enjoying similar, if not better, markets.
According to the Chinese National Bureau of Statistics, 67 out of the 70 largest Chinese cities saw home prices jump by an average year-over-year increase of 4.3% in April. That's on the heels of a 3.1% increase in March.
Real estate prices in China's three largest cities—Guangzhou, Beijing, and Shanghai—enjoyed the strongest appreciation. New home starts were up an impressive 14.5% in April. And that is after serious restrictions designed to cool the red-hot Chinese real estate market.
The China State Council recently passed new measures to cool home prices, including increased down-payment requirements and interest rates on second-home mortgages. Despite that, real estate developers/builders are brimming with confidence.
Real estate has always been extremely popular with Chinese investors because it is viewed as a safer store of value than stocks. The primary long-term driver of real estate prices, however, has always been rising wages.
The average annual wage in China increased by an average of 14% in 2012, and those higher wages are pushing real estate prices higher.
It's easy for US investors to take part in the China real estate run-up. Four Chinese real estate stocks are listed right here in the US. All of them are trading below $10 a share...and the first three are even cheaper at less than $5!
- E-House (EJ) is the Century 21 of Chinese real estate. It is the largest real estate brokerage company in China, and has offices in most of the largest Chinese cities.
- China Housing & Land (CHLN) develops entry- and mid-priced homes in Xi'an, home of the famous terra-cotta warrior sculptures.
- Xinyuan Real Estate (XIN) is based in Beijing, but develops and constructs residential real estate units all over China.
- China HGS Real Estate (HGSH) develops large-scale residential and commercial projects in China. HGSH recently reported a 579% jump in revenues and a 550% surge in profits. Its stock is up over 1,000% in the last year.
Don't forget that a strong real estate market also boosts demand for appliances, cement, steel and furniture.
If you're more of an ETF-type of investor, you could consider Guggenheim China Real Estate ETF (TAO), which is invested in the largest Chinese real estate developers like Cheung Kong Holdings (CHEUF) and Sun Hung Kai Properties (0016.HK), which only trade on the overseas and Over-The-Counter markets. Just like the four stocks listed above, TAO trades right here on the US exchanges.
Now, I'm not suggesting that you rush out and buy any of the above stocks or ETF before doing your own homework. As always, timing is everything, so I suggest that you wait for these to go "on sale" or wait for my buy signal in my International ETF Trader service before buying.
As far as Chinese real estate, just remember that the Chinese are no different than us. They all aspire to having their piece of what we call the American Dream, which is to own their own home. But one of the key differences is that there are 1.4 billion of them aggressively pursuing that dream!
So, if you're looking to buy into the overseas dream, starting with a real estate investment in China could be a great place to start.