Chinese Property Shares Sink on Overpriced Home Prices

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In Asia Thursday China's Shanghai Composite Index lost 1.3% to close at 2,811 and Hong Kong's Hang Seng Index added 0.3% to end the day at 23,172. In Japan the Nikkei 225 Index rose 0.5% to 10,286.

News that a major Chinese think tank, the Chinese Academy of Social Sciences, believes that real estate prices are overpriced to the tune of nearly 30% took the property sector by storm today. The organization released its annual report saying that in five of the 35 cities they investigated, property is selling for more than 50% of what it should be, while homes in another 11 cities are selling for 30% to 50% above their actual value.

According to China Economic Net, this puts home ownership out of reach for about 85% of urban Chinese families since wages just aren't keeping up with the skyrocketing real estate market. This is right in line with what locals are reporting. According to one expat, home prices in her swanky Beijing neighborhood are out of sight, and locals seem to be competing to pay even more to flaunt their wealth.

An analyst with China Real Estate Information Corporation told China Economic Net that, "The central government should maintain its tough stance to curb property speculation over the coming year to help raise buyers' affordability." Lower prices would have a direct impact on developers' profits, and today Poly Real Estate tumbled 4.5%, China Vanke slumped 3.8% and Gemdale fell 2%.

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Chinese banks also took a tumble with Bank of Beijing slumping 2.7% and Huaxia Bank Co falling 2.2%. Among major lenders, China Construction Bank declined 1.7% and Industrial & Commercial Bank slipped 0.9%.

These losses were countered by more big gains in the railway sector as investors pin their hopes on a government cash injection into the industry, resulting in orders for railway cars. Building on yesterday's heady gains China Railway Group soared 5.9% and CSR, which produces railway cars leaped 7.3%. Competitor China CNR surged 5.2%.

In Hong Kong it was insurance companies that buoyed the market. Bloomberg reports that Standard & Poors raised its outlook for life insurance firms in the U.S., and this bubbled over into the Hong Kong market. Prudential Plc climbed 7.3% and Manulife Financial rocketed up 5.3%. Among Asian-based insurers China Life advanced 0.5% and Ping An Insurance edged up 0.3%.

Other gainers included Internet companies serving Chinese customers. China Unicom racked up a 3.4% gain and Tencent, an Internet gaming company, added 1.2%.

In Japan financial firms headed north on data showing that the economy is growing faster than expected. Mitsubishi UFJ rose 3.7%, Sumitomo Mitsui Financial gained 3.5% and Mizuho Financial Group advanced 2.9%. Nomura Holdings, a brokerage and financial services company, saw a 3.9% gain and T&D Holdings, a life insurer, motored up 4.4%.

The yen weakened against the euro today, brightening the futures of Japanese carmakers that depend on a beneficial exchange rate when converting overseas profits back to their home currency. Today Mazda Motor surged 2.9%, Honda climbed 1.6% and Nissan rose 1.2%.

But some exporters were not so lucky. Sumco, a semiconductor manufacturer supplying firms engineering solar batteries and a range of consumer products, lost 5.9%, continuing yesterday's declines after announcing it expects heavy losses for the year.

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