China property prices stabilize

Almost 36% of cities recorded positive month-on-month price changes of not more than 0.6%.

Kim Eng Hong Kong Research noted:

Mainland property prices reversed their eight-month downtrend and edged up by 0.1% in June, on a MoM basis. The slight stabilization of mainland’s property prices is inline with our expectations.

According to the announcement made by the National Statistics Bureau of China yesterday, 25 cities out of 70 recorded positive MoM price changes of not more than 0.6%, versus May’s 6 cities and not more than 0.2% hike.

Of the 17 major cities we are following, core cities (Beijing, Shanghai, Guangzhou and Shenzhen) recorded a higher MoM price hike of 0.2% for June. Hangzhou, Dalian and Zhanjiang led the other 67 mainland cities and recorded MoM price hikes of 0.6%, 0.4% and 0.4%, respectively. On the other hand, 2 Zhejiang cities Wenzhou and Jinhua recorded the largest price drop of 0.6% and 0.5%, respectively in June.

We believe that property prices are stabilizing in China. Our recent chats with developers we are covering revealed that they are still focusing on sustaining the strong contracted sales momentum.

With less-aggressive discounts offered, the chance for large-scale price hike in 3-4Q12 is not likely, in our view. Central government's tightening policies targeted to property sector, particularly on Home Purchase Restrictions, are still being strictly executed.

With only selected policy loosening (mostly targeted to aiding first-time home buyers, rather than stimulating investment demand), the chance of significant property price increase in medium term is small, in our view. Hence we continue to favour the sector in medium-term as the risk of further tightening is minimal.

Share price of major mainland developers dropped 1.2-6.0% yesterday, and we believe that the market has over-reacted to the news, as the China Index Academy already reported on July 3rd that property prices of 100 mainland cities rebounded by 0.05% in June, on MoM basis.