Chinese property prices may be on a tear, but it's time to pull back on exposure to developers' stocks amid a stockpile of unsold supply, Goldman Sachs said.
The bank cut its exposure to the shares from overweight to market-weight, citing in part the sector's 14 percentage-point outperformance compared with the MSCI China index over the past year.
Goldman said it was also concerned that government policy on property may become less supportive, with prices in higher-tier cities having surged over the past year, prompting some cities to introduce cooling measures. The bank noted that tier-one cities accounted for about 30 percent of the net asset value (NAV) for the developers it covered.
Despite long-running fears over a potential supply glut, China's property prices have had an inexorable climb. In April, home prices in 100 cities rose an average 9 percent from a year earlier, after rising 7.4 percent on-year in March, according to a poll from the China Real Estate Index System (CREIS), Reuters reported. The 10 biggest cities, including Shenzhen and Shanghai, saw prices rise 14.4 percent on-year in April, the report said.
But Goldman estimated that the market was only about a third of the way into destocking property supply nationwide, citing CREIS data that showed inventory in tier one, two and three cities had fallen from peaks of 19-23 months' worth of supply to around 8-10 months currently.