China Still the World's Best Housing Market - Really?
Writer for CNBC.com
Even as talk of a bubble building in China's housing sector gathers momentum, one analyst says it is still one of the most attractive property markets in the world.
Alan Jin, property analyst at Hong Kong-based brokerage Mizuho Securities Asia, urges investors to snap up opportunities in Chinese property developers, despite these fears.
"China is still one of the best residential property markets in the world given the risk reward profile," said Jin. "Despite all the talk of tightening and of a bubble, it is an extremely profitable business for developers in the region."
China has seen a boom in the property sector recently, with some cities witnessing a 10-fold increase in prices.
The government has been trying to cool this market and earlier this month announced further tightening measures to stabilize prices. It called for stricter enforcement of a 20 percent capital gains tax on home sale profits and asked cities with fast property price increases to raise the down payment requirement and mortgage rates on second homes.
(Read More: Why China's Property Market Is Getting Scary)
This led property counters in both the Hong Kong and Shanghai markets to tank as some analysts expected property prices to fall up to 10 percent squeezing the margins of property developers.
But according to Jin, China's property developers are enjoying strong sales growth given the healthy demand from rapidly growing aspirational Chinese consumers. This combines with double-digit rise in wages across China in recent years.
(Read More: China Property Curbs May Knock 10% Off Prices)
According to Jin, China Overseas Land & Investment has an attractive profit margin of around 20 percent seen over the past five years and Country Garden Holdings will benefit from the government's policy to build affordable home.
(Read More: Why China Home Curbs Are Not Bad News for Stocks)
However, both stocks have suffered falls in value this year. China Overseas Land & Investment's share price has fallen around 18 percent from a record high in January, while Country Garden's stock has recovered losses incurred earlier in the year and is down 1.2 percent year to date.
But Jin is not worried: "China's property developers have all gained market share since the government started policy tightening over the past two years. They can access banks' cheap financing and can acquire land cheaply. Even in a market downturn their balance sheets will be safe." he said.
Nothing Like the US
Some market commentators have drawn parallels between the Chinese property market and the U.S. home market crash of 2007 as a warning against investing in the market, but Jin disputed this comparison.
(Read More: No US Style Crash in China Home Market: JPMorgan)
"Chinese home owners are not as heavily leveraged, even for their second and third homes," said Jin. "They are only borrowing around 17 percent and have 83 percent equity. Meanwhile in the U.K. and the U.S. home owners borrow up to 80 percent of the value of their property. There is a clear difference," he added.