Weekly Property Sales Flash:Buyers holding off after robust sales growth in the last week of 2010

Property sales in ten major Chinese cities have slowed overthe past week, with GFA sold posting an overall decline of24% WoW. The decline in transaction volume in the primarymarket was partly due to buyers sitting back after the riselast week despite the threat of further tightening measures.

The Bohai Rim region and Pearl River Delta regions led thedecline, with Shenzhen and Tianjin recording WoW declinesof 68.1% and 39.5% in volume terms, respectively. Thesedeclines were accompanied by average WoW volumedeclines of 18.2% and 16.7% for the Western and YangtzeRiver Delta regions.

Once FY10 came to a close, a number of developersposted strong full-year sales performances, with manyachieving their annual targets. Many of these samedevelopers are optimistic about sales in 2011 despite thetight policy environment and the wave of new supply aboutto hit the market this year. China’s developers believe thatas long as projects are reasonably priced, demand willremain strong and contribute to buoyant contracted salesperformance.

Property prices have been stubbornly high despite repeatedsets of tightening policies issued since April 2010. Until thegovernment sees prices begin to plateau, it is unlikely torelent on tightening. The policy setting residential unitpurchase limits in 14 designated cities in 2010, includingBeijing, Guangzhou and Xiamen is to be extended into2011. We remain positive on developers with projectsfocusing on end-user demand and insulated from thetightening policies.

We expect transaction volume to recover in the comingweeks because of the vast number of project completionssince 4Q10. Developers will begin launching projects atreasonable prices as a way to capture sales volume withthe strong user demand. Unless there are further tighteningpolicies, transaction volume will remain healthy with amplesupply coming onto the market this year.

Our top pick within the sector remains CC Land (1224 HK,Outperform) with its strong contracted sales of RMB5.8b byDecember 2010. The developer has exceeded its annualtarget of RMB3.4b by 70%, demonstrating its improvedproject execution capability. We believe its operatingperformance will remain robust in 2011 given its rich projectpipeline. We are also positive on Glorious Property(845 HK, Outperform) as the group has entered 2nd and3rd tier cities with relatively less policy risk where theprojects would start contributing profit this year.