Asian markets in a slumber as property prices wake up

Asian markets remained in a slumber today with US markets closed overnight and little to be inspired from European trading.

Analysts are now running the numbers as corporate reporting season approaches and consensus earnings estimates, across the board, seem to be a little too high. Confession season is underway.

While economic indicators have all pointed to weakening growth, one thing has caught our eye this week and that’s the way property prices have been reacting across the Asia Pacific region. Property isn’t the best guide to confidence but it is a good one.

Jim Chanos and the hedge fund gurus who propose a hard landing in China have proposed property prices will be hard hit, but anecdotal evidence suggests otherwise. China’s new home prices in June increased for the first time in 10 months, up by a very modest 0.1% to around $1369 per square metre. The survey was based on prices across 100 cities.

In Singapore, private residential property prices firmed by 0.4% to a record in the three months ending June. Prices were also higher in Australia over the past month.

South Korea is important, prices have recently been declining – off by around 0.7% this year – so a turnaround there will be an important piece to the puzzle should it occur.

The above data, couple with the copper price back above US$3.50/lb and the stabilization of iron ore price suggests two things:

1) China’s effort to curb steel manufacturing and property investment might be coming to an end, with the social and economic fallout a cost too large to bear particularly given the fact that inflation is now well within the PBOC’s own target range.

2) House prices in China might actually start rising again and intensifying into the end of this year. In the first three weeks of June, land sales in most first and second tier cities are reported to have increase by around 40-50% from subdued levels booked in the prior month. Government statistics point to higher property transactions.

A resumption in Chinese property price growth, leaving aside the issue of sustainability, will be a positive short term boost to the beaten down regional developers, those in the business of construction materials and the financial sector as lending growth and transactions resume.

It’s a wildcard call but if China’s property sector does unexpectedly grow, there will be many bears that have been waiting for a crash re-evaluating their positions and perhaps scrambling to change their negative positions. An area to watch very closely.