Weekly Property Sales Flash:Transaction volumes during peak season continue to climb

Property sales in ten major Chinese cities have climbed overthe past week, with GFA sold posting an overall increase of13.0% WoW. The increase in transaction volume in the primarymarket was partly due to catch-up sales by developersattempting to reach their annual contracted sales target.

The increase was led by the Yangtze River Delta region, withaverage WoW growth of 22.7%, where Suzhou and Shanghairecorded 52.4% and 19.9% WoW rises respectively, in volumeterms. The Western region also recorded WoW growth of18.1% though this was partly offset by Beijing and Guangzhou,which saw WoW declines in volume by 28.6% and 5.4%,respectively.

Transaction volumes, which began rising in August 2010,continued their upward track while average selling priceremained stable. We maintain our view that further credittightening is unlikely. This aligns with the view of the vicechairman of the China Banking Regulatory Commission(CBRC) who indicated he would not introduce further loanpolicy restrictions.

Our recent discussions with developers, including ChinaOverseas Land (COLI) (688 HK, Neutral), and ChinaResources Land (CR Land) (1109 HK, Outperform), revealedthat developers do not plan to increase selling prices duringpeak season. It would appear that existing policies are workingto the point where developer cash flows are being squeezed.

They are now compelled to sell and collect proceeds duringpeak season. Developers are highly unlikely to raise pricessignificantly and risk provoking the government into imposingfurther tightening measures.

Transaction volumes will pick up during peak season.

Developers may continue to launch new projects at reasonablediscounts to capture sales with the aim of achieving annualcontracted sales targets. They also hope to collect salesproceeds and alleviate some of the financial pressure theyfeel amid the tight lending policy environment. An uncertainpolicy outlook remains the key risk but we do not believe thereis a high probability of seeing new sets of policies given thatproperty prices have been stabilizing even with growingtransaction volumes.

Our top picks within the sector are Agile Property (3383 HK,Outperform) and Shimao Property (813 HK, Outperform) asthey have 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) ontheir strong growth potential and attractive valuations.