China
is beginning to show renewed growth. The country is focusing on
stimulus spending and easy monetary policy in hopes of getting its
economy back on track and driving its consumers to spend.
And
while there has been talk of an asset bubble in China’s real estate
market, my view is that the short-term risk is high, but there is
excellent long-term growth potential in China’s real estate sector. (For
my views on China’s retail sector, read “Luxury Retailers Loving China.”)
Investment
in the country’s housing market surged 61.7% from January to November,
based on the data from the National Bureau of Statistics.
There
are over 300 million middle-class consumers in China, and as a group,
they are hungry for a lifestyle similar to middle-class consumers in the
West. Real estate is a key goal for the Chinese.
Standard
& Poor’s analysts believe the real estate market in China is
stabilizing, with buyers returning while home prices continue to
decline.
And in an ironic twist, at a
time when California’s real estate market is struggling, the state’s
California Public Employees’ Retirement System (CalPers), a pension
fund, announced it would be investing about $530 million in two new
China real estate funds managed by ARA Asset Management, which is
longer-term positive.
To play China’s
real estate market, you can take the more conservative approach and buy
The Guggenheim China Real Estate exchange-traded fund (ETF) (NYSE/TAO),
which has a year-to-date return of 53.1% as of November 29. The fund
holds mainly large value-oriented Chinese real state stocks.
Chart courtesy of www.StockCharts.com
To
take a more speculative and potentially higher return opportunity, an
emerging small-cap Chinese real estate company that I like longer term
is Xinyuan Real Estate Co., Ltd. (NYSE/XIN).
Xinyuan is down from its 52-week high of $3.95 on April 3, 2012 and has outperformed the S&P 500 over the past 52 weeks.
Chart courtesy of www.StockCharts.com
Xinyuan
buys land and develops large-scale, high-quality residential real
estate projects that are targeted toward the growing middle class in
China’s Tier 2 cities. The company looks for cities that are large and
growing, with developed urban areas.
Targeted
cities have above-average gross domestic product (GDP) growth and
population growth, and they currently comprise strategically selected
Tier 2 cities, including Hefei, Jinan, Kunshan, Suzhou, Zhengzhou,
Chengdu, and Xuzhou. Combined, the populations of these cities total
over 34.5 million people, according to Xinyuan.
Projects
include multi-layer apartment buildings, sub-high-rise apartment
buildings, high-rise apartment buildings, retail outlets, leisure and
health facilities, kindergarten facilities, and schools.
Xinyuan
also purchased a development site in New York City for $54.2 million
via its U.S. development unit, XIN Development Group International.
Annual
sales grew sequentially in each year over the past nine years. Sales
grew from $12.8 million in 2002 to $688 million in 2011. Xinyuan has
been profitable in seven of the last 10 years, including increases in
the last three years.
Be advised that
any stocks mentioned in this article are meant only for illustrative
purposes and should not be construed as a recommendation.
Article Source: Profitconfidential
Article Source: Profitconfidential