China Property Stocks Takes A Bashing!

I just read on Bloomberg news that China property stocks are taking a tumble due to an announcement by the China government on strict measures to curb property price from over inflating and minimizing property speculations. Here are the key measures:

1. An income tax as of 20% of the profit they make on the transaction. (previously home sellers can chose between paying 20% tax on profit or 1% - 3% tax on the selling price)
2. Potential home buyers who can't show proof of paying tax for at least one year will not be able to make a property purchase.
3. Down payment and mortgage rates on loans for second home buyers in cities will be raised.

The announcement caused a massive tumble on property related stocks both in China and Hong Kong today. The Shanghai Stock Exchange Property Index have already lost 9.25% as of writing.

How does that announcement impact us Malaysians?

Well from the perspective of Unit Trust investment, funds investing in China and Hong Kong properties will take quite a hit. Here are a few funds that will likely see a drop in it's NAV tomorrow:

1) Alliance Global Diversified Property Fund

5% of its NAV is invested in Hong Kong property company, Sun Hung Kai Properties Ltd. 

As of writing, Sun Hun Kai has shed 3.2% of it's price as shown below:

However due to this fund's globally diversified investment, the fund would not be heavily impacted by the announcement.

2) Hwang Global Property Fund

2.5% of its NAV is invested in Hong Kong Land Holdings Ltd which is currently trading in the Singapore Stock Exchange. It is expected that the stocks for this company will also decline when the market in Singapore opens tomorrow.

However due to this fund's globally diversified investment, the fund would not be heavily impacted by the announcement.

3) OSK-UOB Asian Real Estate Fund

This fund will be the hardest hit by the announcement. Just take a look at the fund's holdings:

What else is impacted?

Indirectly, shares in Australian mining companies will also see a drop. Once the tightening measures are in place, demand for property will drop causing a slow down in new properties development and ultimately reduce the import of raw construction materials by China from Australia. 

Summary

This is not a buy call for property related unit trust fund. In fact this is a warning to stay away from these funds. The price of these funds have dropped far below the listing price and will continue to drop even more. Until there is a turn around or a new policy change, property related unit trust funds will likely to remain in cold storage for quite some time.

Cheers and Happy Investing!