Everyone has a view about how the economy is doing, and when you are aware that 67% of the American economy is based on shopping, there are many with terrific insights. At a different level, the economic development or booster agencies will look at number of construction cranes in a city or housing development. Invariably people need a place to live and the property development sector offers mortgages and rents or both demand and outlook concerns. The property industry often goes through boom and busts cycles because it is a lagging indicator, when housing prices go up, people want in and developers are usually happy to supply, until there is oversupply and then a bust or slowdown happens. When this happens the banks which financed the mortgages slow down and seemingly the economy slows. In China the bust is happening.
In an article by Clare Jim of Reuters, the government of China will guarantee new onshore bond issues by a few select private developers to support the property sector. China has used the property industry to build apartments across China but some cities are ghost cities because few people live there. The jobs are elsewhere.
In China, some developers had defaults on their bonds as home sales slumped. State planners are trying to implement policies that will boosting economic demand in a strong, reasonable and moderate demand. This would allow property developers to keep developing but not bust.
Linking to dividend paying stocks, after you own your home, you hope that the value increases if you need to sell, but if you do not need to sell the property market fluctuations mean less to you as long as prices are moderate or slowly growing. In similar fashion, when you buy a stock you hope it goes higher, but if you are receiving dividends you can wait until you need to sell. There are many similarities to why you buy and hold to other sectors and somewhere along the way if you are wealthier in the end, you have made good decisions.
There are more questions than answers, till the next time – to raising questions.