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Dry bulk investors' eyes and ears are on the Chinese government

Part 7
Dry bulk investors' eyes and ears are on the Chinese government (Part 7 of 8)

Dry bulk investors are watching as China’s real estate sales fall

Slowing down

Activity in China’s real estate sector is also coming down. After surging for much of 2013, partially on the back of weak 2012 figures, year-over-year sales growth has gradually fallen over the past two months and is now in negative territory.

China Real EstateEnlarge Graph

Real estate sales growth falls

China’s total building sales during the first two months of 2014 were valued at 709 billion renminbi, down 3.67% from the first two months in 2013. Due to differences in the Lunar New Year holidays each year, China often publishes January and February data together. Rolling average sales growth, using the last six data points, fell from 18.1% to 15.0%.

Since the first two months of sales last year were particularly strong, negative year-over-year growth isn’t that bad. Average growth, using the past six data points, doesn’t look like it’s collapsing—at least not yet. But it’s definitely something the government, as well as other market followers, are watching since real estate is highly intertwined with the broad economy. Should monthly growth remain negative over the next few months or even fall further, China’s outlook, as well as the outlook for the Guggenheim Shipping ETF (SEA) and dry bulk shippers like DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Safe Bulkers Inc. (SB), and Navios Maritime Holdings Inc. (NM), will be negative.

Land Purchase and Floor ConstructionEnlarge Graph

Land purchased and floor construction

Year-over-year growth in land area purchased and floor space under construction has been strong, rising from -20% in mid-2012 to roughly 20% by the end of 2013. January and February’s year-over-year growth of 19.1% for land area purchased and 16.6% for floor space under construction are decent. But we must consider that these two indicators lag cyclical upturns and downturns in the economy. As with most industries, supply often lags demand. We should keep an eye on whether the land area purchased remains at a healthy level in the coming months.

According to a Bloomberg article, “The government will curb demand for housing among investors and will regulate the housing market “differently in different cities,” Premier Li Keqiang said at a press conference in Beijing.

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