In a bid to contract the size of its property holdings in China, on Monday, Goldman Sachs Group Inc. (GS) was reported to be in final stages of making a sale agreement of its Shanghai property with Shanghai Forte Land Co. Ltd. (Forte), a Chinese property developer, for more than $200 million.
Post the exit of a rival bidder, Poly Real Estate Group Co., Forte had offered its interest in buying the Shanghai Garden Plaza, a residential complex of villas and serviced apartments, from Goldman. The US investment banker had bought this property in Shanghai in 2007 for $190 million.
The decision to sell follows Goldman’s policies since last year, when the company along with other US giants such as Morgan Stanley (MS) and Macquarie Group Ltd., started diluting their properties in China, taking advantage of the country’s real estate market rebound. Additionally, the lackluster and mature real estate market in China is fast losing foreign investors due to declining returns on the backdrop of surging prices and falling rental income. Goldman continues to face losses in its real estate portfolio.
Alongside, many US banks are also de-leveraging and restructuring portfolios after the global financial crisis that led to weakness across businesses. Meanwhile, the real estate market in China is also facing stringent regulations from the government. The government is progressively initiating policies to curb speculative inflows, penalize land hoarders and pace up home supplies in order to calm down a property market bubble that was stimulated by loose monetary policies and nearly 10 trillion renminbi ($1.5 trillion) in new bank lending in 2009. Goldman’s decision amid this scenario appears justified and viable.
Although the final price and time of the completion of the deal are yet to be disclosed, we believe vending of the Shanghai property will benefit Goldman in more ways than one, as discussed above. Goldman has a well-diversified investment portfolio although real estate losses are likely to weigh on the results in the near term. We think that Goldman’s sturdy capital and liquidity will lead to increased profitability from newer opportunities once the economy recovers.
On Monday, the shares of Goldman closed at $171.56, down 1.6%, on the New York Stock Exchange.
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Read the full analyst report on “MS”
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