Property sales in ten major Chinese cities have recoveredslowly over the past week, with GFA sold posting an overallincrease of 2.0% WoW. The slight increase in transactionvolume in the primary market was partly due to people’sbelief that the likelihood of more rollout of tighteningmeasures is minimal.
The Western region led the increase, with Chengdu andChongqing recorded a WoW rise of 42.3% and 3.5%,respectively, in volume terms. In addition, the Pearl RiverDelta region saw a 9.2% growth WoW, with Guangzhouposting a rise of 18.6% WoW.
However, the Yangtze River Delta region recorded a 9.4%decline, with Nanjing and Suzhou falling 44.9% and 20.3%,respectively, although Shanghai rose 23.1% WoW. Inaddition, Bohai Rim also posted a 3.6% decline.
According to a loan investment statistics report released bythe People’s Bank of China last week, total new loansextended to the property sector saw an apparent decline.
Total loans for new developments in 1H10 stood at aroundRMB442.3b, which was 5.0% lower than that at end-1Q10.
During the same period, total new mortgage loansamounted to RMB932.3b, which was 3.8% lower thanend-1Q10. We believe that China’s tightening policy to theproperty market has taken effect, so there is no need for thegovernment to implement any further tightening measuresin 2H10.
Looking ahead, we believe developers will start to offerdeeper discounts for their new project launches in thecoming months. In light of the reduced property loans, webelieve the developers will cut prices to alleviate the liquidityissue. The key risk remains the uncertain policy outlook,which may give rise to volatility in transaction volume. Ourtop picks in the sector include regional players and highbeta stocks, such as CC Land (1224 HK, Outperform),Glorious Property (845 HK, Outperform) and SRE Group(1207 HK, Outperform), most of which have been sold downheavily in previous months. However, we expect them torebound strongly when the sector fundamentals improve.
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