China’s Long-Suffering Property Stocks Aren’t Yet a Buy

Pent-up demand in all probability contributed to the renaissance. That could final for a whereas as consumers who weren’t capable of buy an house through the depths of the pandemic restrictions lastly sally forth. Investors are in all probability attracted by how low cost the sector has develop into—property shares commerce at about two to 3 instances this yr’s anticipated earnings, although builders are additionally more likely to scale back their revenue steering, in accordance with Nomura.

But it’s nonetheless too early to inform if it’s a sustainable restoration. For one, the financial system continues to be struggling and the job market, particularly for the youthful era, stays sluggish.

An growing discrepancy exists between housing markets within the greatest and smallest cities. So-called third tier cities missed out on the newest gross sales bounce, with transactions final week nonetheless under final yr’s stage, in accordance with knowledge from Wind. Housing costs in first tier cities rose 3.5% yr on yr in May whereas these within the third-tier cities fell 2.2%, in accordance with authorities knowledge.

That in all probability displays the tight provide scenario in massive cities like Shanghai and Beijing. Finding new land to maintain up with demand in densely populated megacities is perennially difficult. Smaller metropolis markets the place many builders—particularly these now in deep debt hassle—rushed in to develop through the growth days will in all probability discover it a lot more durable to get better.

The commodity market additionally appears to be casting doubts on a full-blown recovery. Futures of iron ore and coking coal—used to make metal—each fell round 11% Monday. Prices of metal merchandise have additionally dropped. The market appears to suppose demand from a property rebound or infrastructure stimulus may not be as sturdy as anticipated. Iron ore has now misplaced all its beneficial properties to this point this yr.

The latest housing gross sales knowledge signify a glimmer of hope for traders. But property builders’ woes aren’t almost over but.

Write to Jacky Wong at jacky.wong@wsj.com