E-House China Falls as Property Value Concern Deepens

China’s Deflating Property Market Seen Raising Local-Debt Risk
Residential buildings stand at the Sea Shore of China development in the Sanya Bay district of Sanya, Hainan Province, China. Photographer: Brent Lewin/Bloomberg

Chinese stocks trading in the U.S. snapped a four-day gain as E-House China Holdings Ltd. led a drop in real-estate companies amid mounting concern that home sales in the world’s second-largest economy are slowing.

The Bloomberg index of the most-traded Chinese stocks in the U.S. fell 0.5 percent to 99.65 yesterday, while a gauge of Shanghai property stocks was little changed today. The American depositary receipts of E-House, a real-estate agent, dropped as much as 6.1 percent. SouFun Holdings Ltd., which operates a real estate website, sank for the first time in three days. New Oriental Education & Technology Group Inc. tumbled the most on the ADR gauge as Deutsche Bank AG cut it to hold from buy.

Sales of new homes in 54 cities during the May 1 to May 3 holiday fell 47 percent from the same period in 2013 to the lowest level in four years, Centaline Group, parent of China’s biggest real-estate brokerage, said May 4. The report comes two weeks after the National Bureau of Statistics said the value of residential sales slumped 7.7 percent in the first quarter.

“I am cautious toward the Chinese property market,” Elena Ogram, a Zurich-based investor at Bank Bellevue AG, who oversees $50 million in emerging-market assets including Chinese stocks, said by phone. “The government may take steps to support the market, but we are not expecting any rosy news.”

The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the U.S., dropped 0.9 percent to $34.70. The Standard & Poor’s 500 Index gained 0.2 percent as an expansion in U.S. service industries outweighed concern over growth in China and political tension in Ukraine.

The Shanghai property stock index dropped 0.1 percent today, extending a four-day, 5.2 percent decline. Markets in Hong Kong are closed today for a holiday.

Cities Loosen

E-House fell 3.3 percent to $8.91. SouFun retreated 2.7 percent to $12.25.

Developers including China Vanke Co. and Greentown China Holdings Ltd. have cut prices, and discounts have spread from smaller cities with “a massive” oversupply to big cities including Shanghai and Guangzhou where demand remains strong, according to an April 28 report by China Real Estate Information Corp., a property data and consulting firm.

Tongling city in the eastern province of Anhui will give tax breaks to buyers of homes that are 144 square meters or less if they are the family’s only home, according to a statement from the city’s government yesterday.

Attractive Valuations

E-House has declined 41 percent in New York this this year and trades at 9.3 times estimated earnings for the next 12 months, the lowest since December 2012, according to data compiled by Bloomberg. The valuation already reflects the impact of tightened consumer lending standards, according to Ella Ji, an analyst at Oppenheimer & Co.

“At this price, E-House looks attractive,” Ji, who has a buy rating on the ADRs, said in a telephone interview.

SouFun’s ADRs have lost 26 percent this year and trade at 13.3 times estimated 12-month earnings.

New Oriental, China’s largest private education company, tumbled 6 percent to $23.98. Deutsche Bank lowered the price target on the ADRs to $27 from $37, saying its move to expand into the K-12 education market will have a “negative impact” on growth and profit margins.

New Oriental sank 8.6 percent on April 28 after it posted first-quarter revenue that trailed analysts’ estimates.

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