Executives of Chinese developers including Shimao Property Holdings Ltd. (813) and Glorious Property Holdings Ltd. (845) are buying the most stock in their companies since at least 2008, betting the government will ease curbs on the property market that had depressed the shares.
Shimao’s billionaire Chairman Hui Wingmau bought 11 million shares in November, bringing the total this year to 82 million, the most since 2008, according to data compiled by Bloomberg. Glorious Chairman Zhang Zhirong, with a $5.4 billion net worth according to Forbes, purchased a record 119 million shares through 11 transactions, mostly in September, the data show.
Glorious, Shimao and KWG Property Holdings Ltd. (1813), whose executives also have been buying stock, lost half their values in 2011 as the government tightened mortgage requirements and introduced limits on properties owned to prevent an asset bubble. China this month cut the amount of cash banks must set aside as reserves for the first time in three years to prevent a bubble.
“These share purchases are sending a signal to the market that the government may gradually loosen its policies, whether or not those executives have inside information,” said Johnson Hu, a Hong Kong-based property analyst of CIMB-GK Securities Research. “The lower reserve ratio, while not directly intended for the property sector, will actually indirectly benefit the real estate market.”
Shimao climbed 4.4 percent at the close in Hong Kong, the best performer on the MSCI China Index (MXCN) tracking Chinese companies traded on the city’s exchange. Glorious fell 1.8 percent while KWG lost 2.6 percent.
Glorious shares climbed 0.9 percent as of 11:18 a.m. in Hong Kong trading, the first gain in six days, Shimao was unchanged while KWG fell 0.8 percent.
China will maintain a “prudent” monetary policy and a “proactive” fiscal policy next year, the official Xinhua news agency reported Dec. 10, citing a meeting of the Communist Party’s Politburo chaired by President Hu Jintao. Data on Dec. 9 showed industrial-production growth weakening and inflation moderating.
The Hang Seng Composite Property & Construction Index, (HSCIPC) which includes Shimao and Glorious, trades at less than 0.8 times book value, compared with a multiple of as high as 1.4 in the fourth quarter last year, according to Bloomberg data.
The 13.4 million shares Shimao’s Hui purchased on Sept. 2 was the biggest amount in at least two years, the data show. The Shanghai-based developer of mostly high-end homes, and hotels traded at a record low 0.54 times book value on Oct. 3, almost a third of its valuation at the start of the year, according to the data.
“Mr. Hui is always very confident in his company and the main reason for the recent share buyback is the price is at a low and attractive level,” said Tammy Tam, a Shimao spokeswoman.
Hui spent HK$689 million ($89 million) on his company’s stock this year, while Zhang from Glorious paid HK$154 million, based on the closing prices on the purchase date of the shares.
Top executives at Guangzhou-based luxury home developer KWG, commercial real estate builder Powerlong Real Estate Holdings Ltd. (1238) and CC Land Holdings Ltd. (1224), whose properties are mainly in western China, also increased share purchases this year, according to data on Hong Kong-traded Chinese developers.
“The company is operating well, but share prices were just too low,” said Eva Chan, a spokeswoman at CC Land, whose Deputy Chairman Peter Lam made his first stock purchase in the company in at least two years. “When Mr. Lam bought the shares, he was actually buying at a 70 percent discount to book value. It was a great deal.”
Four Stock Purchases
Lam paid HK$477,050 through four stock purchases in September, based on CC Land’s closing prices on the date the shares were bought.
The five mid-sized Chinese developers whose executives were most active in buying stocks have a combined market value of HK$47 billion, less than half of the HK$111 billion value for China Overseas Land & Investment Ltd. (688), the biggest Chinese property company listed in Hong Kong.
Some foreign investors remain bullish on China property. Hong Kong billionaire Li Ka-shing’s Cheung Kong Holdings Ltd. (1) and CapitaLand Ltd. (CAPL), Southeast Asia’s biggest developer said last month they are planning more investments in the country.
CBRE Global Investors, manager of $94.8 billion of real estate assets, is mulling its first investment in the nation’s housing market in four years in anticipation the government will start easing its property curbs, Richard van den Berg, Greater China country manager, said on Nov. 14.
The government stepped up curbs this year with limits on mortgages and restrictions on home purchases in about 40 cities, as well as aiming to build 10 million affordable housing units to boost supply. Prices fell in October from the previous month in 33 of 70 cities, the worst performance since the government started releasing data on individual cities in January.
“The economy will slow sharply in coming months due to a weak property market and exports,” said Zhang Zhiwei, Hong Kong-based chief China economist at Nomura Holdings Inc., who in a Nov. 21 report wrote that the real estate sector has probably reached “a tipping point.” He said in the report he expects the government to maintain its housing measures and loosen monetary policy “gradually.”
China will “unswerving” maintain its property measures next year, Xinhua said yesterday, citing a government statement.
Evergrande Real Estate Group Ltd. (3333) is among developers whose executives are not buying shares. They are not “intervening too much,” preferring to focus on the day-to-day running of the company, said Xia Haijun, chief executive officer of China’s second-biggest developer by sales. Xia said he didn’t buy the stock after it fell as much as 43 percent this year.
For those who have bought stock, the purchases might be paying off. Shimao has climbed 22 percent from this year’s low in October, while Glorious, a Hong Kong-based developer with residential, office and retail projects in 12 Chinese cities, is up 12 percent. KWG shares have risen 12 percent from 2011’s trough in November.
Top executives at developers that “usually have long-term views of their own companies think they can take profits from share buybacks in the long run,” said Jeffrey Gao, a Shanghai- based property analyst at Macquarie Group Ltd.
--Bonnie Cao. With assistance from Allen Wan in Shanghai. Editors: Andreea Papuc, Linus Chua