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Is China property done dirt cheap?

Wang Zhao | AFP | Getty Images

China's slowing property market tops the list of major economic risks, but some analysts say the sector's stocks are "dirt cheap" and now is the time to buy.

"We have been waiting for a catalyst for the dirt cheap China property sector and the time now seems ripe," Nicole Wong, regional head of property research at CLSA, said in a note Wednesday, citing reports the city of Beijing has seen mortgage rate cuts as a key driver.

Read More Why China hasn't seen more defaults

While Beijing appears to be the only city currently seeing the mortgage discounts, banks in other cities are likely to follow suit, she said, adding that some local governments aren't waiting on the banks and are increasing the availability of pension-backed mortgages.

"Historically, sale volume always picks up with credit and with various local governments signaling support by relaxing Home Purchase Restrictions and peak property season starting in September, we believe sales volume will accelerate and price/margin will stabilize," she said. "Earnings visibility will improve and the sector should re-rate."

In a note Friday, CLSA upgraded Hong Kong-listed China property player Agile Property to Buy and raised its target price 70 percent to 8.50 Hong Kong dollars, noting that if the stock rises to that price, it would still only be trading at 5.5 times 2015 earnings. The stock was trading around 6.56 Hong Kong dollars intraday Friday.

China's house prices increased at double digit rates throughout most of last year, but began cooling towards the end of 2013 as government tightening measures started to take effect.

Read More China property stocks jump on hopes curbs will be relaxed

In June, average new home prices in China's 70 major cities fell 0.5 percent on a month-to-month basis, marking their second consecutive monthly drop after May's 0.2 percent decline, although Reuters calculations indicated prices rose 4.2 percent year-on-year after rising 5.6 percent in May.

Some are expecting the physical property market could see a sharp correction in the months ahead, but still like some of the sector's stocks.

"It is too extreme and premised on too many misunderstandings to assume the China property market is 'game over' forever," Citigroup said in a note Monday, adding it sees opportunities amid the pessimism.

Read More China property primed for shake-up as downturn drains cash

Over the next two years, Citigroup expects average selling prices in the physical market will fall around 20 percent in tier one and two cities and 30 percent in tier three and four from their levels at the end of 2013, with national contracted sales volume to fall 10 percent and 20 percent on-year this year and next respectively.

But when it comes to sector stocks, while they are likely to range-trade for the rest of the year, "there is upside more than downside," it said, with share prices already factoring in the price declines. It noted that sector stocks are trading at around 7.2 times 2014 earnings, compared with a historical average of 9.1 times.

It advises accumulating high-quality players with strong execution records and with the potential to act as industry consolidators, such as COLI, Shimao, and Sunac among Hong Kong-listed shares and Poly China and Vanke among mainland-listed stocks.

Sentiment among investors in the sector may already be improving, Nomura said in a note Tuesday, adding that at a marketing trip in Singapore, investors had mostly moved to a neutral weighting.

Read More Why China property isn't facing Armageddon

Investors cited a sales rebound in June amid price cuts, implying genuine demand, as well as a more favorable credit environment for mortgages and with more cities relaxing policies to support the sector, Nomura said.

"Sales volume will move up gradually in the third quarter, albeit with more price cuts," Nomura said. "We expect a solid pick-up in September and October, with massive new project launches."

To be sure, some are still advising investors steer well clear.

Read More Zero-interest loans highlight China property risks

"I won't put my money into China," Andrew Freris, CEO at Ecognosis Advisory, told CNBC. He expects China's economic growth will continue to slow this year before flattening out early next year.

"That's why my advice to my clients is keep out of equities [and] the equities that are related to the property sector, I emphasize that, to about the middle to the end of the first quarter next year," when there will be clear evidence economic growth has stabilized, Freris said. "That's when I'll begin to lick my chops again," he said.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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