Consider China real estate plays on signs of loosening restrictions
The news: Property sales volume increased in three Chinese cities and rumors are circulating that the government is set to ease restrictions on housing purchases.
The significance: After months of gloom, China's property sector appears to be poised for a turnaround. The People's Bank of China cut both benchmark lending and mortgage rates last week, and local media reported this week that the government has lowered mortgage rates for first-time homebuyers by 30%, both factors that would help real estate emerge from the down cycle. The number of properties sold has increased in Nanjing, Hangzhou and Shenzhen in recent months, indicating that buyers could be seeking out bargains ahead of the rumored easing of restrictions. Any investment in China housing stocks involves some speculation on the government's actions, and analysts have predicted easing since the beginning of the year that has yet to come. But the government will likely loosen restrictions sooner or later, and this news indicates easing may be more likely. Riskier stocks with higher variance, also known as beta, will likely jump the most on an easing announcement or even rumors of easing.
The takeaway: Investors might consider investing in China property stocks known to fluctuate more than the overall market, such as Agile Property Holdings (3383.HKG) and Evergrande Real Estate Group (3333.HKG, EV1.FRA), on expectations of a housing sector rebound and rumored easing.