China's property sector is booming even as economy slows

Tomohiro Ohsumi | Bloomberg | Getty Images

China's second quarter growth data this week confirmed a continued slowdown in the world's second largest economy, but the one sector that remains robust is real estate and Citi expects property developers to outperform the market in the second half of the year.

Revenues from property sales in the country jumped more than 43 percent in the first half of 2013 from a year earlier, and even though that was down from an almost 53 percent rise in January to May, the levels still remain high, government data showed.

Citi said transaction volumes grew nearly 29 percent year on year, while real estate investment spiked almost 21 percent in the first half, showing that China's property space remains one of the economy's most resilient sectors.

According to Citi, as the Chinese economy slows, policymakers will see the need to protect the health of the property sector and hold off on further cooling measures.

"Deterioration of China's economy suggests policymakers will be wary of any new measures that might harm the health of the property market," Citi said in a note on Monday. "Overall, we expect conditions in China's property sector to be similar to 2012 − characterized by steady growth amid general stability."

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Double-digit growth in the China's hot real estate market continues despite credit tightening and a series of government measures rolled out in March as part of a four-year-old campaign to cool the sector. Added to that, June's sales on residential property hit a monthly record high of $102 billion – equivalent to the sales of the first two months of the year combined.

The property market growth also comes even as China's economy slowed for a second straight quarter this year, down to 7.5 percent in April to June from a year ago, compared to 7.7 percent in the first three months.

(Read More: China's economy slows for second straight quarter)

Citi expects Hong Kong listed property developers to outperform the Chinese real estate market as a whole this year and sees 20 to 30 percent sales growth.

"By the first half of the year, 21 key listed developers had achieved an average 50 percent run-rate of their full-year sales targets (up 34 percent year on year) – decent, in our view, given the high base of these key developers," the report said. "Most developers should be able to achieve their sales growth targets in 2013, which average 18 percent."

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China Vanke, the country's largest real estate developer by sales and one of Citi's top picks, reported that property sales picked up 1.5 percent in June from the previous year, while first half sales jumped 34 percent from a year ago.

Citi is bullish on developers with balanced sales growth and disciplined land banking (putting aside land for future sale or development), rather than those being on the "over-aggressive" on either side.

- By CNBC.com's Rajeshni Naidu-Ghelani; Follow her on Twitter @RajeshniNaidu