The Chinese housing market has reached a bottom and therefore will present new opportunities for investors given its strong government-backing.
This is according to Nish Popat, who manages the Neuberger Berman Short Duration Emerging Market Debt and Emerging Market Corporate Debt funds.
In his latest commentary piece, Popat argues that despite the challenging lower-growth environment, larger developers with better access to funding should have more opportunities to bid on quality land and gain market share.
‘Overall, we believe that the housing market has likely reached a bottom. Continued strong government support and improved funding should ensure the stabilisation of the sector and bring back home buyers,’ he said.
While anticorruption efforts are ongoing, he believes that they present idiosyncratic risks and are generally positive for the long-term prospects of the industry. ‘Market consolidation will be an ongoing theme in the sector as leading developers become even larger over time.’
On the flipside, Popat pointed out that the Chinese property market is becoming more polarised geographically, as certain cities have a better backdrop than others.
‘This means that, while we are enthusiastic about the sector, we believe that bottom-up credit selection is more important than ever in this maturing and sizeable property market.’
Easier funding conditions
After a sharp contraction in 2014, Popat believes the Chinese housing market will experience a modest recovery in 2015 for a series of reasons.
First is the policies enacted by the central bank, which has cut the benchmark rate three times and the banks’ reserve requirement ratio twice. Second is the loosening of the home purchase restrictions (HPR) engineered by the government.
Last but not least, he says the array of funding sources for developers has increased. ‘This includes not only traditional construction loans, trust financing and offshore bond market issuance, but also stock offerings and the onshore bond market, which was recently reopened to developers after six years of inactivity.’
‘Also, developers can now better access the offshore syndicated loans market, while borrowing is expected to become cheaper onshore as the PBOC implements further rate cuts.’
Over the past year to May 2015, the Neuberger Berman Short Duration Emerging Market Debt fund has returned 0.68% in USD terms. This is while its Citywire benchmark, the JP Morgan EMBI +, rose 0.55% over the same timeframe.