Chinese property sales slowing

Morgan Stanley is out with a note this morning suggesting that Chinese property transactions are slowing:

May sector data moderating: There was no Soufun weekly sales data amid the Dragon Boat Festival holiday on the Mainland, but NBS released the May macro data before the holiday, and they continued to show a moderating trend in the residential market. Residential investment was relatively stable, growing 22.5%, or YTD 21.6%. New GFA starts in May fell 2.4% YoY, hampered by a -24.4% YoY decline in May land area purchased. New home sales growth moderated to 27.3% YoY from 41% in April.

Developers on track to meet full-year targets: As we expected, contracted sales of the major developers rose MoM in May but were weaker than March levels. Most of the developers under our coverage are ahead of their target run-rate, at an average of 43% by end-May. We expect a series of debut launches to drive certain developers’ contracted sales further…although the industry may not be able to achieve the typical 30-40% MoM rise in June sales volume this year.

Tighter liquidity? Shibor spiked up ahead of the Dragon Boat Festival. 7-day repo was over 5% and overnight over 6%. May M2 also moderated to 15.8% from 16.1% in June. MSCI China Real Estate generally underperforms when M2 growth slows down, although the recent spike in Shibor may be caused by some short-term factors, e.g. the holiday effect and banks’ short-term cash hoarding.

This will be an important development for iron ore in he second half if sales continue to fall, as authorities plan. Approximately one third of iron goes into real estate.