Policy risks will weigh down China property stocks: BNP Paribas

China’s property stocks are likely to be ‘range-bound’ in 2010 on concern that the government will step up measures to curb gains in real estate prices, according to BNP Paribas.

The China SE Shanghai Property Index has slumped 9.7 per cent this year, after doubling last year, as the government re-imposed a sales tax on homes sold within five years of their purchase and pledged to speed up the construction of low-cost housing.

The gauge rose 0.2 per cent last week as annual parliamentary meetings didn’t introduce any new measures to rein in property prices.

‘Some commentators are suggesting policy risks were abating,’ Frank Chen and Trevor Cheung, Hong Kong-based analysts at BNP Paribas, wrote in a report yesterday. ‘We disagree and believe policy risks will stay with the sector for most of 2010 as the government continues to keep a tight grip on property prices.’

Premier Wen Jiabao repeated a pledge in his annual report to lawmakers earlier this month to counter property speculation and ‘keep price levels stable’. Real estate prices climbed 10.7 per cent in February from a year earlier, the fastest in almost two years, according to the statistics bureau.

Brokerages including UBS, JPMorgan Chase & Co, Credit Suisse Group and BofA-Merrill Lynch Research have turned positive on China’s property developers in the past month, saying the plunge in share prices this year has made them cheap and concern over tighter credit has been overdone.

The Shanghai property index trades at 25 times reported profits, near the lowest versus the Shanghai Composite Index since June 2008, according to weekly data compiled by Bloomberg.

Valuations for Chinese property developers are ‘very low’ and demand will be bolstered by rising incomes, Winson Fong, who helps manage about US$2.5 billion at SG Asset Management HK Ltd in Hong Kong, said in a Bloomberg Television interview yesterday.

BNP reiterated its forecast for 2010 property sales volumes to fall by 10 per cent and advised investors to sell shares of Hong Kong-listed Guangzhou R&F Property Co.

Guangzhou R&F has dropped 9.5 per cent this year, while China Vanke Co, the biggest mainland-traded developer by market value, has declined 15 per cent in Shenzhen.

Source : Business Times – 16 Mar 2010

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