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Latest Chinese Real Estate Demand Indicators Reflect Slowdown


Apr. 28 2015, Updated 10:06 a.m. ET

Chinese real estate demand indicators

As discussed in the previous part, building sales in China declined 9.3% in March. There are several other Chinese real estate demand indicators that steel investors should also track. In the US, there are housing starts and the architectural billing index, which are leading indicators for residential and nonresidential construction, respectively.

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Land area purchased

Land purchase is the first step in the construction of any building. The previous chart shows the land area that Chinese real estate development enterprises purchased. The China National Bureau of Statistics releases this data on a monthly basis. In the first three months of the current year, real estate development enterprises purchased 40.51 million square meters of land, which represents a year-over-year (or YoY) decline of 32.4%.

As of March, construction was started on 237.24 million square meters, a YoY decline of 18.4%. The total floor space under construction stands at 5840 million square meters, a YoY increase of 6.8%.

Clearly, the real estate activity in China (FXI) (EWZ) is slowing down. This is a negative sign for steel companies like Mechel (MTL) and Companhia Siderurgica Nacional (SID). Vale (VALE) is also impacted by the slowdown in the Chinese steel industry. The company supplies iron ore to Chinese steel companies.

Property prices

Property prices have also been weak in China. February new home prices fell in 66 out of 70 top Chinese cities. In January, prices had fallen in 64 cities. A fall in real estate prices is negative for China’s real estate industry and it negatively impacts investor sentiments.

Lower property prices also negatively impact the China real estate climate index. In the next part, we’ll analyze the latest trend in the China real estate climate index.


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