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China Stocks

Vanke: good stock at bubble price?

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Stock Price
Shares of Vanke (sina, Google Finance) has gained more than 200% YTD, but it is taking a hit lately. A while ago I read these two interesting articles (21cbh, sina) about the valuation of Vanke share. The key question is whether it is over priced, considering its growth potential. Of course no one can predict the growth. At the beginning of 2007, has anyone predicted the housing price in Shanghai would go up 30% to 50% this year? I know I did not…

Housing Price
Vanke chairman Wang Shi said the Chinese housing market is at its turning point now. I don’t know whether the Chinese housing market is peaking out or not. In the following I used its monthly sales data and tried to calculate the average price in last 7 months. The ave price went from 7,634 Yuan per sqm in May to 10,393 Yuan per sqm, a 36% gain. From May 31 to Nov 30 its stock went from 19.41 Yuan to 31.55 Yuan, a 63% gain.

Area (thousand sqm) Sales (mil Yuan) Ave price (Yuan/sqm)
Nov 407 4230 10,393
Oct 546 5160 9,451
Sep 735 6920 9,415
Aug 705 6280 8,908
July 493 3660 7,424
June 722 5660 7,839
May 617 4710 7,634

And now it appears Vanke is dropping the housing prices in selected cities in China (Guangshou, Shanghai). Quote 21cbh:

万科(000002.SZ)楼盘突然全线降价。

12月9日,位于广州康王路的万科金色康苑正式开盘,不到两个小时,首次推出的C栋156套单位即全部售罄,销售金额逾2.1亿元。交易清淡的广州楼市,突然再现久违了的火爆,原因在于万科开盘定价13000元/平方米的均价,远远低于之前透露的20000元/平方米以上的价格。另一个广州楼盘万科云山开盘价12000元/平方米,上周未出现部分单位7000元/平方米起,66万元可以买到三房单位。

不仅仅是广州。10月20日,万科以7500元/平方米的低价推出位于深圳龙岗坪山的万科金域东郡,开盘当天售罄;上海万科部分楼盘降价,平均降幅15%……

Conclusion
If Vanke can grow like it did in last 2 or 3 years, the high stock price can be justified. If not, it is more like to go back to where it was in May…

(Update Dec 16) Another “on sale” news on Vanke and China housing. Similar to the earlier 21cbh article. Vanke is a decent indicator of Chinese housing market because it’s the No. 1builder (about 1.5% market share).

(Update Dec 18) Blogger 一和家家 questioned the rationale behind Vanke’s secondary offering couple months ago. I think one un-scientific sign of the topping of real estate in China is a few months ago when they release top 10 richest persons in China, most are in the real estate industry.

On the other hand, note the Chinese housing market is still a fragmented and local market. So the price drop in Shenzhen, Guangzhou and Shanghai does not mean the housing in Zhengzhou will drop too. Xinyuan (NYSE:XIN), the newly listed company operates mainly in Zhengzhou and other 2nd tier cities.

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