China's Mining Boom Attracts New Investors

Source: Commodity Online (6/21/11)

"China's real estate sector shifts its gaze from the housing market to mining."

Commodity Online

More and more Chinese real estate companies are turned their attention towards the booming mining sector in the country, according to China Mining Association (CMA).

In a report, CMA said at least 15 property developers, buoyed by rising metal prices and great potential returns, have tapped the mining industry with a total investment of 19.26B yuan.

Most of the investments went to mines that produce gold, lead, zinc and molybdenum, according to the CMA.

The change of developers' investment strategy came after it became harder for them to cash in on the housing market, which has been weighed by a series of government measures since last year to cool down the hot market.

The measures include higher down payment requirements, interest rate increases, home purchase restrictions, price controls, third-home purchase bans and a real estate tax trial in the cities of Shanghai and Chongqing.

Analysts said China's current anti-inflation monetary tightening and the rising prices of mineral products and other commodities would inevitably induce real estate developers to seek higher returns from other sectors.

From January to May, land sales in 128 Chinese cities dropped 5% year-on-year to 665.9B yuan ($102.45B), while residential land sales fell to 519.3B yuan, according to data from the CEBM Group Ltd., a Shanghai-based real estate investment advisory firm.

According to financial statements by housing companies, more than half of property developers enjoyed a profit margin of around 60% on their investment in mining, while about one third posted a 20% return on mining-related investments.

Analysts urged caution, however, saying mining may not save some housing developers squeezed out by the country's tightening measures over the housing market because of underlying risks.

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