The only big winners from Australia’s housing slump are the property developers
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Australia is in the middle of a once-in-a-generation housing slump that is set to continue throughout 2019.
This followed a boom over the past several years which led to housing prices in capital cities spiralling by up to 80 per cent.
But the market is in the middle of a correction and it seems the real estate small caps sector has followed suit in 2019.
Stockhead’s analysis has found only a third of ASX real estate small caps have made gains in 2019.
The top seven of these are all real estate developers, having returned an average of 20 per cent to date in 2019.
However, only one of these has made substantial gains.
Velocity Property Group (ASX: VP7) has gained over 90 per cent this year.
The only news out of the company was a mere estimation of its net profit after tax for the most recent half year — expected to be $1m-$1.5m.
Although it could be up to three weeks for the results to be final, investors approved: the announcement was clearly more than an appetiser.
Even though 240 million shares have been released from escrow, the stock’s 14-day Relative Strength Index (RSI) of 57 suggests any recent sellers were more than balanced out by confident buyers.
The RSI measures the buying and selling momentum. Anything above 70 is usually overbought.
It can be puzzling when one group of stocks in a sector outperforms all of its peers in the way these property developers have.
Perhaps investors don’t care about housing prices and just believe Australia has a housing shortage and property developers can benefit — although whether there actually is a housing shortage is a hot topic of debate among academics and economists.
Despite this, the majority of real estate stocks have fallen this year and some property developers fall into this category.
Nevertheless, only 6 are down by 10 per cent or more. Two of these are China-connected stocks — Lionhub Group (ASX:LHB) and Boyuan Holdings (ASX:BHL), down 20 per cent and 38 per cent respectively.
Boyuan has not had any news, whereas Lionhub has had poor cash flows for several quarters.
Its most recent quarter was no different with the only revenue ($217,000) coming from the issue of convertible notes.
Arguably both have been hit by sentiment that the threats of crackdowns on Chinese ASX-listings will come to fruition.
Among the other big losers was the Agency Group (ASX: AU1), down by nearly 30 per cent this year.
However, all its losses occurred on January 10, when its share price halved. The company halted trading for five days then announced it had acquired a competitor, Top Level Real Estate, and raised $8.4m in a placement. Its share price has slowly recovered since then.
Here’s a list of ASX real estate small caps and their performance to date in 2019: