Three ETFs Influenced By Chinese Real Estate

As China continues to witness exponential economic growth, its real estate sector is following and the Chinese government is taking measures to curb the real estate boom potentially influencing the Guggenheim China Real Estate (TAO), the iShares FTSE EPRA/NAREIT Dev Asia Idx (IFAS) and the Guggenheim China All-Cap (YAO).

China’s Finance Ministry recently announced that it will speed up the introduction of a trial property tax in certain cities before implanting the levy across the nation.   The Ministry further stated that the tax rate will be 1 percent for units that are 90 square meters or smaller and will end an income-tax exemption on profits from the sale of real estate reinvested within one year. 

To further spark a crackdown on its real estate sector, which has witnessed property prices in 70 of its major cities rise 9.3 percent in August from a year earlier, China is urging commercial banks to stop offering loans to buyers of third homes and extended a 30 percent down payment requirement to all first-home buyers.  Additionally, banks have been ordered to stop lending to property developers that violate industry regulations, have raised interest rates on second-home mortgages and have put restrictions on the number of new homes that residents can purchase in certain cities. 

Overall, these increased regulations and the implementation of a property tax on residential real estate are likely to hinder the Chinese real estate sector influencing these ETFs:

  • Guggenheim China Real Estate (TAO), which is a diversified play on Chinese real estates and includes 41 holdings.
  •  iShares FTSE EPRA/NAREIT Dev Asia Idx (IFAS), which allocates more than 8% of its assets to Chinese real estate holdings.
  • Guggenheim China All-Cap (YAO), which includes companies which will be directly influenced by stricter lending regulations such as China Construction Bank Corporation, Industrial and Commercial Bank of China and Bank Of China Limited.

If currently invested in these ETFs, to further protect against downward price pressure implementing an exit strategy is important.  Such a strategy can be found at www.SmartStops.net.

Disclosure: No Positions

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