Tony Sagami: The U.S. real estate market certainly seems to be recovering, with U.S. home sales now hitting their highest level in more than three years. But other parts of the world are enjoying similar, if not better, markets.
According to the Chinese National Bureau of Statistics, 67 out of the 70 largest Chinese cities saw home prices jump by an average year-over-year increase of 4.3% in April.
That’s on the heels of a 3.1% increase in March.
Real estate prices in China’s three largest cities — Guangzhou, Beijing and Shanghai — enjoyed the strongest appreciation.
New home starts were up an impressive 14.5% in April.
And that is after serious restrictions designed to cool the red-hot Chinese real estate market …
The China State Council recently passed new measures to cool home prices, including increased down-payment requirements and interest rates on second-home mortgages.
Despite that, real estate developers/builders are brimming with confidence. “Underlying demand is so strong that it’s very hard to control prices,” said Chris Brooke, CEO of CBRE Group (CBG), a commercial real estate services and investment company.
What’s Driving Chinese
Real Estate Prices?
Real estate has always been extremely popular with Chinese investors because it is viewed as a safer store of value than stocks. The primary long-term driver of real estate prices, however, has always been rising wages.
The average annual wage in China increased by an average of 14% in 2012, and those higher wages are pushing real estate prices higher.
It’s easy for U.S. investors to take part in the China real estate run-up.
Four Chinese real estate stocks are listed right here in the U.S. on the NYSE and Nasdaq. All of them are trading below 10 bucks a share … and the first three are even-cheaper at less than 5 bucks a share!
- E-House (EJ) is the Century 21 of Chinese real estate. It is the largest real estate brokerage company in China and has offices in most of the largest Chinese cities.
- China Housing & Land (CHLN) develops entry- and mid-priced homes in Xi’an, home of the famous terra-cotta warrior sculptures.
- Xinyuan Real Estate (XIN) is based in Beijing, but develops and constructs residential real estate units all over China.
- China HGS Real Estate (HGSH) develops large-scale residential and commercial projects in China. HGSH recently reported a 579% jump in revenues and a 550% surge in profits. Its stock is up over 1,000% in the last year.
Don’t forget that a strong real estate market also boosts demand for appliances, cement, steel and furniture.
If you’re more of an ETF-type of investor, you could consider Guggenheim China Real Estate ETF (NYSEARCA:TAO) which is invested in the largest Chinese real estate developers like Cheung Kong Holdings and Sun Hung Kai Properties, which only trade on the overseas and Over-The-Counter markets.
Just like the four stocks listed above, TAO trades right here on the U.S. exchanges.
Now, I’m not suggesting that you rush out and buy any of the above stocks or ETF before doing your own homework. As always, timing is everything, so I suggest that you wait for these to go on “sale”.
As far as Chinese real estate, just remember that the Chinese are no different than us in that they all aspire to having their piece of what we call the American Dream, which is to own their own home.
One of the key differences is that there are 1.4 billion of them aggressively pursuing that dream! So, if you’re looking to buy into the overseas dream, starting with a real estate investment in China could be a great place to start.
Uncommon Wisdom (UWD) is published by Weiss Research, Inc. and written by Sean Brodrick, Larry Edelson, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended inUWD, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in UWD are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Roberto McGrath, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Marty Sleva, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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