Policy tools galore
More interest rate and reserve requirement ratio (RRR) cuts, along with looser polices for the housing provident fund, which offers mortgages subsidized by local governments, could be rolled out in 2015. These will ensure liquidity remains abundant, helping to finance buyers and developers, wrote Citi's property analysts in a note.
These expectations come on the back of a host of supportive measures that Beijing adopted in 2014 to prop up its housing sector, which accounts for nearly 15 percent of the mainland economy and impacts more than 40 industries.
In September, mortgage rates and downpayment levels were cut for the first time since the 2008/09 global financial crisis. Mortgage restrictions were also loosened in favor of first-time buyers and loan terms relaxed for existing homeowners in October. Most recently, a government agency in Beijing raised the upper limit on the loan cap for property, effective this month.
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But the most notable move, experts say, is the central bank's surprise interest rate cut last November. The People's Bank of China lowered benchmark lending rates by 40 basis points to 5.6 percent and deposit rates by 25 basis points to 2.75 percent – its first rate move since 2012.
The efforts appear to be working: Month-on-month, China's home prices fell 0.5 percent in November, better than October's 0.8 percent decline. Data from the National Bureau of Statistics showed property sales hit an 11-month high of 132.2 million square metres in November, though that was still down 11 percent on year.
Meanwhile, China's biggest residential developer China Vanke reported a 129 percent on-year jump in sales in December, while sales over the same period for mid-sized Country Garden surged 167 percent.
Experts are optimistic that the sector is showing tentative signs of bottoming out in 2015.
"The rate cut is shifting pricing pressure of the developers onto the banking system. Given construction new starts down by 15 percent on-year in 2014, supply pressure will also ease in 2015," said Nicole Wong, head of property research at CLSA. "This sets the scene for volume and price recovery, bottoming of developers' margins and earnings upward revision."
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CLSA also attributes its overweight rating to the fact that the sector is trading broadly at a price-earnings ratio of 5-8 times, which should provide room for "substantial upside" in the next 12 months, Wong wrote.
CLSA prefers companies with mid gearing levels and a big-city focus like China Resources Land, Shimao Property and Sunac, which may gain more than 10 percent each in 2015.
Citi sees the first half of 2015 as a good time to be aggressive and recommends plays that have market leadership and background as a state-owned enterprise like Poly Real Estate and China Vanke.