China’s real estate sector
China’s real estate sector is a key component of the country’s economic activity. It accounts for ~11% of its gross domestic product (or GDP). Changes in real estate activity have historically trended with the overall economy. With China being the largest importer of iron ore and the second for coking coal used to make steel, a key material used to construct buildings in China, China’s real estate activity positively correlates with shipping demand.
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July climate index
For July, 2014, China’s Real Estate Climate Index stood at 95 consistent with the levels last year and also with the previous month’s levels. The composite index was developed by China’s National Bureau of Statistics. It measures the aggregate business activity for land, capital, and sales of real estate, which is useful in showing the trend of the Chinese real estate market. Figures above 100 show prosperity or economic growth, whereas figures below 100 mark depression.
July home sales rising with falling curbs
With more cities adopting easing home purchasing restrictions, the Chinese property market has now started to show signs of a slight upturn leading to a rise in home sales in some of the cities. In China, among 46 cities that introduced property policies, more than 60% have lifted home purchase restrictions.
July home sales reached 12,400 units in Jinan, the capital of Shandong Province, which lifted curbs on July 10, a month-over-month (or MoM) increase of up to 92%. Meanwhile, Hangzhou City eased restrictions on July 29 and home sales in the city increased to 6,074 units—up 23% MoM. Meanwhile, Wenzhou and Hohhot also saw a slight growth in home sales in the same period.
To limit the drag from a cooling housing sector on the overall economy, nearly half of China’s regional governments have started relaxing curbs on home purchases in 2014. This is reversing controls that were instituted from as early as 2009. A report by the China Index Academy revealed that local policy adjustments in the real estate market could help lift positive expectation for investors, leading to a recovery of the housing market.
With the real estate market scenario improving in China, the dry bulk shipping companies to watch are DryShips Inc. (DRYS), Diana Shipping Inc. (DSX), Knightsbridge Tankers Ltd. (VLCCF), Navios Maritime Partners LP (NMM), and Eagle Bulk Shipping Inc. (EGLE). The Guggenheim Shipping ETF (or SEA) tracks the shipping companies.