During our trip to China we visited various property developments across Shenzhen, Dongguan as well as the new free trade zones. We were left with a positive impression on the Chinese property market overall, given healthy prices, inventory levels and mortgage rates, alongside robust demand as people look to upgrade to better housing and rising wages make housing more affordable. Sentiment has also been important for demand and the US/China trade war has negatively impacted confidence over the past two years. A trade deal as well as stable economic growth in China should support the market. Gradual loosening should continue, though the central government remains focused on market stability rather than excessive growth, which we view as positive.
This trip also reinforced our view that when investing in property companies in China, being selective is key. High quality developers have access to the most attractive land and focus on profitable projects, while vacant and failed projects can quickly lead to poor results and balance sheet issues.
Historically, property developers in China have generally been regarded as volatile investments. However, we believe that the perception is changing and, as the sector matures, it is becoming more attractive for equity investors. The main themes we uncovered during our trip are: ongoing industry consolidation leading to higher quality, better growth and sustainable margins for the listed payers; diversification into recurring revenues notably through property management; the acceleration of urban renewal projects; and a more stable residential market driven by central government policy.
Photo taken by the team during their visit to Dongguan, January 2020. The photo shows a redevelopment project in Dongguan, designed to revive the area into a contemporary multi-use development with modern housing, offices, restaurants and green spaces.