Daily iron ore price update (Chinese property bottom?)

The ferrous complex cooled on June 29, 2022:

As noted in recent days, we are seeing a jump in Chines property sales though it is very likely pent-up demand and there are seasonality issues with holiday timing:

Now, some are seeing the bottom:

The recent comments by Yu Liang, Chairman of property developer China Vanke Co. Ltd, excited the market on Tuesday, triggering a strong rally in homebuilders’ stocks.

Yu said at the company’s shareholder meeting on Tuesday that “the real estate market has hit a bottom, from a short-term perspective.”

The relatively neutral comments about the struggling sector is rare for Yu, who has been viewed as one of the most pessimistic figures in the industry and in the past years, issued multiple warnings about the sector’s gloomy outlook.

Hi said Tuesday that “looking around the whole society, the real estate sector is not the most difficult one” as the sector still has a market of ten trillion yuan.

According to a report by the China Real Estate Information Corporation (CRIC), residential property transactions in China’s top 100 cities totalled about 116 million square meters in the first five months of the year, a plunge of 51% from a year earlier, sliding 24% and 38%, respectively, from the same period in 2020 and 2019.

According to data provided by Yu, in the first quarter of this year, residential property sales in tier-one and tier-two cities fell 36% year over year, and in April, due the to impacts of the Covid outbreaks, home sales in these cities tumbled by 59% on year, sliding 23% from the pervious month, and “the situation become even more severe.”

Yu’s talks about the real estate sector’s bottom was based on the recent changes in market situation and policy environment.

Since May, major indicators of the real estate sector has been improving. For instance, home sales in tier-one and tier-two cities declined by more than 50% in May from a year ago, but rising 7% from the previous month.

Yu estimated that new home sales will pick up significantly in June, while some improvement will also be seen in the second-hand home market, adding that the number of cities with rising home listing prices will increase.

In addition, China’s central government and local governments have been scrambling to relax property curbs to prop up the struggling housing market.

“The home demand delayed by the Covid outbreaks has been released in June,” said Yu, adding that the month of June is a traditional key time window for developers to step up promotion in order to ensure achievement of their full-year sale targets.

However, Yu noted that several positive factors can only provide short-term boost and the housing market is unlikely to show quick rebound after the bottom, and it may need a longer time for the market to recover.

Since 2015, driven by growing population, acceleration of urbanization and monetization of shantytown redevelopment, China’s real estate sales has been climbing and developers resorted to aggressive expansion plans.

However, “in the current stage, China’s population structure, personal income and the regulatory framework for the real estate sector have all changed significantly and the sector has been forced into a new phase of development,” said Yu, adding that “developers can’t use the old logic to expect a return to a peak.”

China’s Vanke President Zhu Jiusheng said in the same occasion that the company had some projection about the real estate market at the start of 2022, but the declines in the market had exceeded the expecations.

According to CRIC’s data, China’s top 100 property developers’ sales fell on year in each month between January and May, with the decline expanding from 39.7% in January to 59.4% in May. For the first five months, the 100 developers’ sales reached about 1.85 trillion yuan, slumping 53.25 from a year ago.

During the five-month period, China Vanke’s sales by floor area reached 9.81 million square meters, with the sales value reaching 168.1 billion yuan, sliding 45.36% and 41.39%, respectively, from a year earlier.

“This has been the most stressful period for me in my whole career,” said Yu. “However, in a ten trillion yuan market, property developers will be able to find new market opportunities.”

For Vanke, in the next three years, the company aims to stabilize its property development business and maintain its position in the first tier of the sector, and meanwhile, Vanke hopes to take a leading role in completing the transformation from “focusing on property development” to “engaged in both property development and property management, the company said.

We shall see as the holiday distortions wash out of sales over the next few weeks.

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