China's real estate market is showing signs of a rebound. Property sales in some cities rose in May, and home buyers are flooding into property showrooms, according to The Wall Street Journal.
Previously, consumers in China took a wait-and-see attitude toward home purchases due to stringent government policies aimed at curbing property speculation. Now, China's central bank has relaxed its mortgage policies, and certain commercial banks have lowered their mortgage rates for first-time homebuyers. Earlier this month, China cut interest rates for the first time since 2008 to promote economic growth.
China HGS Real Estate (NASDAQ: HGSH), a leading real estate developer in Shaanxi Province, expects its regional housing market to improve in the months ahead. HGSH continues to benefit from China's accelerated urbanization and "Go West" policy, which aims to boost the nation's less developed western regions. Approximately 250,000 people are moving into HGSH's core market of Hanzhong every year. As the dominant player in its operating regions, the Company is able to maintain pre-sale rates of approximately 70%.
HGSH has signed bulk-purchase agreements with various government departments and agencies in Hanzhong, locking in sales of more than RMB200 million ($31.5 million). The Company's substantial project pipeline, with several projects reaching completion in 2014, is expected to drive HGSH's future growth. HGSH recently began construction on one of its major projects: Oriental Mingzhu, a high-end residential development consisting of 12 apartment towers. HGSH also recently attained National Grade-I status, the highest real estate development qualification in China. The National Grade-I qualification allows the Company to expand its operations beyond Shaanxi Province.
RedChip analysts rate HGSH a speculative buy with a 12-month price target of $1.76, a potential upside of nearly 200% from recent prices. You can download our recent HGSH research update at no cost by clicking here. You can also watch an interview with Jim Wang, HGSH's Vice President of Finance, from the recent RedChip Small-Cap New York Conference.
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