Good News Equals Bad News In Chinese Real Estate (TAO, IFAS)
A variety of property companies across China have seen their share prices fall this week as the state media highlighted that transaction volumes across several Chinese cities accelerated last week. In a normal world, an increased number of transactions (which in turn, support prices and indicate strong demand) are viewed as a sign of vigor for the property sector. However, in China that's not the case. Policy makers have been struggling for more than a year to bring speculative activity in the housing market under control to prevent a housing bubble. The continuation of such robust transactions can be seen by many that the boundaries placed by Beijing haven't been effective.
Sales across 18 major Chinese cities rose a further 26% last week versus the previous week. With sales volumes continuing to increase at a rapid pace and property prices skyrocketing, it's only a matter of time before Beijing increases the “harshness” of its methods.
From an investor point of view, real estate could be the one sector to truly avoid in China. Investors may want to sell the Guggenheim China Real Estate (NYSE: TAO) and iShares FTSE EPRA/NAREIT Asia Index (NASDAQ: IFAS) now and revisit the ETFs later.
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