Mobius stays keen on property

10:02, April 22, 2010      

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Demand for housing in China will withstand government bank lending curbs, and further declines in the nation's property stocks may be an opportunity to buy the shares, Templeton Asset Management Ltd's Mark Mobius said.

"We don't see fundamentals of the property industry will change much because of these new policies," Mobius, executive chairman at Templeton, said in response to questions sent by e-mail.

"We are in general still light on Chinese developers and if this correction brings valuations to more attractive levels, it would be a good opportunity for us to step up our positions."

A measure of 34 property stocks on the Shanghai Composite Index has plunged 7.3 percent this week after the government limited loans for third-home purchases, increased down payment requirements and raised mortgage rates. The Se Shang Property Index rebounded 1.6 percent on Wednesday.

The State Council has said stricter measures to control speculation are needed after property prices in 70 cities jumped a record 11.7 percent in March.

Martin Currie fund manager Chris Ruffle said in an interview this week Chinese real estate stocks are becoming "more attractive" as government measures drove valuations to a year-low and made interest rate increases less likely.

Fund purchase

China Asset Management Co, the nation's biggest mutual fund company, bought developers in its flagship fund in the first quarter, predicting "gentle" tightening this year, according to the company's website.

Economists are split on the timing of the nation's first interest-rate increase since 2007. Royal Bank of Canada said higher rates are likely this quarter and could come this month, while Bank of America-Merrill Lynch sees no move until the fourth quarter.

The SE Shang Property Index has lost 17 percent this year, the most among the five industry groups. It now trades at 19.9 times reported earnings, the lowest since February 2009, according to data compiled by Bloomberg.

China ordered developers on Tuesday not to take deposits for sales of uncompleted apartments without proper approval and barred them from charging "abnormally high" prices, stepping up efforts to prevent a property bubble.

The Ministry of Housing and Urban-Rural Development vowed to punish developers that "artificially" create supply shortages.

China's banking regulator also told larger banks to conduct quarterly stress tests on property loans and ensure the risks of such lending is strictly controlled, according to a statement on the China Banking Regulatory Commission's website issued on Tuesday.

"Recent policy changes on property and mortgages were introduced with the purpose of curbing speculation, but not hurting real demand," Mobius said.

Ma Jun, Deutsche Bank AG's chief China economist, this week called the recent actions a blow to the property market.

Shenyin & Wanguo Securities Co analysts led by Zhu Anping said on Tuesday investors should avoid property-related stocks because earnings at developers may deteriorate.

Marc Faber, the publisher of the Gloom, Boom & Doom report, said on Wednesday surging real estate prices and China's "excessive" credit expansion are "danger signals" that growth is peaking.

China's economy expanded 11.9 percent in the first quarter, the most in almost three years, fanning concern that record lending is creating asset bubbles.

Mobius said China will have "strong real housing demand growth" over the next decade as the economy expands and more people move to the cities.

Source:China Daily


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