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China’s Real Estate Indicators and Iron Ore

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China’s property sector

Real estate directly impacts 40 other sectors in China. It’s important for iron ore investors to track China’s real estate growth, as this sector accounts for the majority of steel consumption in China.

Therefore, investors in iron ore companies such as BHP Billiton (BHP) (BBL), Vale (VALE), Rio Tinto (RIO), and Cliffs Natural Resources (CLF) should keep an eye on developments in China’s property sector.

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Property growth

China’s property investments rose 8.5% in the first six months of 2017, compared to their rise of 8.8% from January to May. The government has come down heavily on speculation in the property sector, especially in the housing sector. We can see the effects of these measures in the sector’s decelerating investment growth. However, market participants believe that the sector’s underlying growth remains strong.

According to Reuters calculations, new housing purchased in 1H17 came to 746.6 billion square meters, a 16% rise year-over-year. Property sales as measured by floor area also rose 21.4% in June, more than twice their 10.2% rise in May. New construction starts as measured by floor area climbed 14% in June, their highest rise since October 2016.

Tightening measures and price increases

Chinese authorities have initiated various tightening measures across various cities in China to prevent property market bubbles.

While China’s underlying property demand remains strong, tightening measures are expected to weigh on the speculative interest in its real estate sector. Decreased speculation is expected to negatively affect investment in the sector. 

Borrowing costs have already risen to a two-year high. Analysts are concerned about Chinese real estate stocks (TAO), fearing that the housing market may have reached its peak.

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