China is not like Hong Kong -- at least, its property market isn't. Ideas and sharp inflections take a little more time to ferment on the mainland.
CLSA's head of property research Nicole Wong reckons it's time to start accumulating PRC property stocks pronto, on the reasoning that policy easing will take place in early 2011, and transacted volumes will start to rise during the rest of this year.
"There hasn't been too much of a price connection in spite of talk of affordability and government desire to possibly see lower prices, but I anticipate a strong recovery in volumes in the last quarter of this year," she says.
She is expecting to see property developers cutting prices for the rest of this year by about 5% on average, to coax buyers into the market, encouraged by mortgage rates of 6.6% in China. That compares to rates nearly double that level in other Bric countries. (In India the mortgage rate is 11% and in Brazil 12%.)
However, she doesn't think that the Chinese government is targeting a certain number by which it would like to see property prices fall. "I don't think there is a target decline, because if there was such a target -- of, say, 15% -- then what happens when that number is reached? What does the Government actually do next?"
Property developer Vanke has just reduced prices for new developments by up to 10%, and these incentives have given a jolt to the number of deals being done, with its sales ratio currently at 80%. Only a third of Vanke's sales are carried out by buyers who need mortgages. It's a big cash market.
The policy tightening did cause the brakes to be applied in June, when transaction volumes in 13 major Chinese cities plunged to the same low levels as experienced in Autumn 2008.
Yet there are grounds for thinking these twin scenarios are not the same. As well as vox-pop surveys that suggest plenty of Chinese are gagging for the chance to jump on the property ladder, there is hard evidence of residential rental growth of at least 10% in those key cities taking place at present. During mid- to late-2008, residential rentals were falling.
Having underperformed for the last four quarters, the mainland property sector now offers more opportunities for equity investors than the Hong Kong market, argues Wong. The latter is a market where buyers are shoe-horned into what she characterises as "painful trades", whereby prices of flats are, Wong says, 15 times annual incomes and buyers have the prospect of a 46-year timescale to pay off the debt on a 500-square-foot unit.