While the markets digest the bearish PMIs/ISM reports, with the weakness attributed to Japanese earthquake, I am looking elsewhere today. Actually, my mind is in China, again.
Today I list some of the "Holes in the bull argument" written by property analysts at Credit Suisse on Monday:
■ Credit Suisse proprietary surveys on banks, construction companies and unlisted developers showed no light at the end of the tunnel. Banks’ lending has become much more pragmatic, and the well-accepted perception of favouritism on SOEs may not be correct; many developers are delaying payments to construction companies, and taking private loans with interests beyond 20%—sector cash flow may get much worse soon.
■ ‘Rising salary’ may not solve China's housing affordability issue. Income growth targets and the proposed new income tax reform focus on low income class—the target customers for private housing may actually be worse off as a result.
■ The industry consolidation argument has neglected the impact to book value. Major listed developers only represent a fraction of China’s property market. The potential exodus of small developers could be overwhelming, and lowered land prices may force listed developers to adjust book value.
Click on chart to enlarge, courtesy of Credit Suisse.
By the way,