Goldman Sachs Warns Against Exposure to China’s Real Estate Stocks

Posted by Staff Reporter ( on May 04, 2016 09:01 PM EDT
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Shanghai Composite Index Shed 1.28% Close To 2,900 Pointsmore big
FUYANG, CHINA - MARCH 29: (CHINA OUT) An investor observes stock market at an exchange hall on March 29, 2016 in Fuyang, Anhui Province of China. The Shanghai Composite Index dropped 37.99 points, or 1.28% to 2919.83 points and the Shenzhen Composite Index declined 182.13 points, or 1.77% to 10,094.71 points on Tuesday. (Photo : VCG/Getty Images)

Amid the global economic turmoil, particularly in China, investors are turning to the real estate sector to safeguard their wealth. But Goldman Sachs has issued a warning against having an exposure to developers' stocks, saying that it is now time to pull back.

According to CNBC, the recommendation from the bank came as the country is having an oversupply of properties in the market. Goldman Sachs slashed its shares exposure to market-weight from overweight. It attributed the cut partly to the 14 percentage-point outperformance of the sector as against MSCI Index in the past year. In addition, as prices continue to soar particularly in China's major cities, the bank said the government's policies might not be as supportive of the property sector as before. This is as tier-one cities like Shenzhen and Shanghai have introduced some measures in a bid to cool down the real estate market. About 30 percent of the net asset value for the developers the bank covered consists of tier-one cities.

CNBC cited Reuters' report of a poll from the China Real Estate Index System (CREIS) saying that the value of homes in the country continues to soar despite the supply glut. Average house prices saw an increase of 9 percent in April compared with last year's figures.

Business Insider reported that Capital Economics analysts said that in Shenzhen, house prices rose by as much as 80 percent year-over-year while Shanghai recorded a 65 percent increase. House sales also climbed following the easing of restrictions on local purchases, as well as cutting mortgage costs. These surge in figures concern market players as the country seems to be in the middle of a housing bubble and is likely heading for a crash. Analysts say that the signals look similar to what happened to the United States right before the financial crisis.

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