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Key Chinese Real Estate Demand Indicators Investors Should Track

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Chinese real estate

In the previous part of this series, we learned that in May, China’s building sales registered their first annual gain since December 2013. However, not all indicators of Chinese real estate activity point toward an uptick. In this part of the series, we’ll analyze the trend in land area purchased by Chinese real estate development companies.

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Land area purchased

The purchase of land is the first step in the construction of any building. The chart above shows the land area purchased by Chinese real estate development firms. The underlying data are released monthly by the National Bureau of Statistics of China.

In the first five months of the current year, real estate development firms purchased 76.50 million square meters of land. This represents a YoY (year-over-year) decline of 31%, up slightly from a 32.7% decline in the first four months of the year.

Although the May reading is a slight improvement over April’s, the land area purchased by real estate firms is still in negative territory.

Land area purchased by real estate developers is a leading indicator of construction activity. With the land area purchased for future development diminishing, China’s (MCHI) construction industry appears to be headed for a bigger slowdown.

Negative for steel industry

The slowdown in the Chinese real estate sector is a clear negative for steel producers including U.S. Steel Corporation (X), AK Steel (AKS), and ArcelorMittal (MT). The SPDR S&P Metals and Mining ETF (XME), which invests in US-based metals and mining companies, is also affected by the slowdown in China.

There are some other interesting trends in the Chinese real estate industry that will be discussed in the next part of our series.

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