China Property Tracker:The sales go marching on

Rally in New Home Sales volume continues: New home sales have extended the recent sales momentum, driven by the mortgage loosening at end-Sep. Sales in Tier-1 cities in particular have surged further, by 22% WoW, while Tier-2 cities have seen sales volumes improve by 6% WoW. Among the Tier-2 cities, Tianjin’s sales volumes rose 75% WoW, while volumes in Central and Western China are also robust, e.g., Wuhan’s volumes are up 31% WoW, and Chongqing sold 8,617 units last week, an all-time high. The Soufun MTD new home sales are down 2% YoY.

    Developers to report robust Oct contracted sales: We believe the listed developers will report a strong pick-up in Oct contracted sales in the coming week, which is consistent with the broader physical market, especially as they accelerate their project launches to capture the improved market sentiment driven by the policy loosening. Vanke’s Oct contracted sales were up 13% MoM, to RMB22bn. This brings its YTD contracted sales to a 17% YoY increase, to RMB170.9bn, or 83% of our full-year sales forecast. R&F’s Oct sales declined MoM off a high base, but it was still the third highest monthly sales level recorded in 2014.

    Property stocks trading in line with broader market: The MSCI China Real Estate Index was up 3.6% during the past week, in line with the performance of the broader MSCI China Index. We expect the overall sector to remain in a tight range, but near-term performance to be underpinned by the robust contracted sales. While the sector is trading at a 43% discount to NAV and 5.6x Fwd P/E, together with the accommodative policy stance, the downside risk has diminished. However, the continual pricing pressure amid elevated inventory and highly leveraged balance sheets will continue to cap the upside potential, in our view.