Allianz has gone overweight Chinese property stocks, betting that higher sales volumes even at lower prices will boost profits at real estate companies.

China’s real estate market has cooled in recent months under the weight of a package of government policies to rein in soaring prices, though latest figures show that prices have yet to fall significantly.

Curbs on mortgage lending and bank loans to developers, along with other steps to cool China’s economy, have weighed on local stocks this year, while the Chinese property sub-index is down 23 per cent in 2010.

But Guido Stiel, who helps to manage ?3.5 billion (?1 = RM3.96) in emerging equities at Allianz, said he had initiated a position in the past month with China Overseas Land, the largest listed developer by market value.

His other picks are Shimao Property and Guangzhou .

“Analysts are focusing on the net asset value (NAV) and wanting to revise it down … but the market has not reacted and didn’t fall so we think it is reaching the bottom,” Stiel said.

In the case of property firms, NAV reflects the market value of real estate properties held by the firm.

“The other point is that at the end of August, early September, there will be lots of new supply which should give developers the opportunity to bring down prices. It will be a volume game from now but they will make money on new sales.”

“These companies are beta plays and their balance sheets are not so strong but if the volume game kicks in they will outperform,” Stiel added.

Recent years’ price surge has made buying a home out of reach for ordinary Chinese, so despite the clampdown on property speculation, the government also plans to build 5.8 million housing units for poorer citizens this year.

Analysts see this programme, estimated at up to 400 billion yuan, as a potential lifeline to developers.

Stiel said cooling the economy and markets is positive for China and ultimately for developers as well.

“That’s why we remain positive,” he said, adding that curbs on home loans would not be crippling as only 20 per cent of Chinese housebuyers rely heavily on mortgage borrowing.

Companies too are optimistic. Hong Kong-listed China Overseas for instance reported a 67 per cent jump in net income for the first half of 2010 and said it was confident of 20 per cent net income growth this year.

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