China’s property sector
China’s property sector remains in critical condition due to iron ore demand. Investors in iron ore companies such as Rio Tinto (RIO), BHP Billiton (BHP) (BBL), Vale (VALE), and Cliffs Natural Resources (CLF) should keep an eye on developments in China’s property sector. CLF makes up 1.3% of the VanEck Vectors Steel ETF (SLX).
One of the factors fueling the recent rally in metals and mining shares (GNR) this year has been the improvement in China’s economic indicators. China’s property market has seen a rebound in 2016 on the back of government stimulus measures.
Real estate indicators
- The total floor area (in square meters) under construction by Chinese real estate development enterprises rose 3.3% YoY (year-over-year) in the first ten months of 2016. The growth rate was 0.1 percentage points higher than it was in the first nine months of the year.
- In the first ten months of 2016, building sales rose 26.8% YoY in China. However, the growth rate was 0.1 percentage points lower than it was in the first nine months of the year. It was the sixth consecutive month in which growth rates fell on a monthly basis.
- China’s new construction starts rose 8.1% YoY in the first ten months of 2016. The growth rate was 1.3 percentage points higher than it was in the first nine months of the year.
Overall, China’s real estate investment data was better than expected in October. We also saw a modest recovery in China’s real estate climate index in the month, as you can see in the above graph.
The economy is regaining some strength, but the property bubble is a major threat—the Chinese government could take steps to manage this property bubble. However, in April, billionaire investor George Soros warned that the Chinese real estate and credit bubble warn of global market (ACWI) (FXI) instability.