Weekly Property Sales Flash

Property sales in ten major Chinese cities have remainedmixed over the past week, with GFA sold posting an overallincrease of 1.4% WoW. The slight growth reflected slowingmomentum of property sales in the primary market andstagnant transactions in some cities.

The Pearl River Delta (PRD) and Yangtze River Delta(YRD) regions led the slight rise, up 13% and 9.8%,respectively, in volume terms. The increase in the YRD wasmainly driven by the growth of 76.1% and 8% in Suzhouand Nanjing, respectively.

However, Beijing in the Bohai Rim region and Hangzhou inthe YRD saw a sharp decline of 40.1% and 33.1%,respectively. Sales in Beijing in the previous weeks wereboosted primarily by new project launches but transactionsstarted to slow down after new launches came to an end,with the market turning to be volatile as the current policyenvironment remains uncertain.

Longfor (960 HK, Not Rated) recorded a 31% YoY increasein contracted sales to RMB10.5b, which is around 42% ofits annual contracted sales target of RMB24.8b. Accordingto its plan, more projects would be launched in 2H10 inachieving its full year sales target. Currently, Longfor holdsan attributable land bank of 21.2m sm while the group takesa prudent approach in land bank acquisition by referring toits sales performance and its cash flow position before theywould acquire a land piece. The group currently has a netgearing of 53% while Longfor strive to control the ratio wellbelow 75% by the end of 2010.

Looking ahead, we expect Chinese authorities to reiterateits existing tightening policy in the property market withclearer execution. However, there should be no more newand escalating policies given the existing ones have alreadyeffectively curbed surging property prices since themeasures were first introduced in mid-April. Instead, webelieve a stable policy environment will revive transactionvolumes during the peak season when developers arewell-prepared with proper pricing strategy. However, the keyrisk remains the uncertain policy outlook, which may lead toincreased volatility in transaction volumes. Our top picks inthe sector remain Agile Property (3383 HK, Outperform)and Shimao Property (813 HK, Outperform) with diversifiedland bank and some regional plays such as SRE Group(1207 HK, Outperform) and CC Land (1224 HK,Outperform) with growth potential while trading at ratherattractive valuations.