Weekly Property Sales Flash:Peak season kicks off with higher transaction volumes

Property sales in ten major Chinese cities picked up overthe past week, with GFA sold posting an overall increase of8.6% WoW. The increase in transaction volume in theprimary market was mainly due to the commencement ofproperty peak sales season, which saw developers launchmore new projects at discounts to boost sales.

The Bohai Rim region led the increase, with Beijing andTianjin recording WoW growth of 28.3% and 28.1%,respectively, in volume terms. The rise was supported bythe Pearl River Delta, which recorded average volumegrowth of 9.5%, and the Western region, which recorded4.6% average volume growth.

For internal reasons, Agricultural Bank of China (ABC,1288 HK, Neutral) decided to suspend development loansduring its auditing period, roughly covering the week of24-31 August. The loans resumed on 1 September. By thetime the dust settles, we believe the suspension will havemade a minimal impact on the China property sector.

Vanke (200002 CH, Not Rated) released its operatingresults last week. After launching many of its projects atreasonable discounts of between 10 and 15%, the companyachieved a higher-than-expected sales-through rate on theback of monthly sales, which surged 42% MoM in August.

In the last few months, Vanke has been using discounts tosuccessfully boost sales, a tactic that is being consideredby other developers in the leadup to peak season ascompetition for sales intensifies due to a supply glut. Thesedevelopments created an environment conducive to ourview that prices would come off slightly while volumeswould pick up courtesy of the stable policy environment thatwe believed would prevail during peak season.

We expect transaction volumes to pick up further as theproperty sales peak season gathers momentum.

Developers are expected to launch more projects atreasonable discounts within the 10 to 20% range in order toboost sales and achieve annual contracted sales targets.

An uncertain policy outlook remains the key risk.

Our top picks within the sector are Agile Property (3383 HK,Outperform) and Shimao (813 HK, Outperform) as theyhave strong fundamentals and diversified land banks. Weare also positive on regional players such as SRE Group(1207 HK, Outperform) and CC Land (1224 HK,Outperform) on their strong growth potential and attractivevaluations.