Property stocks tumbled yesterday as investors concluded their recent post-Sars surge had exceeded fundamentals. Henderson Land, Hong Kong's third-biggest developer, slumped 3.96 per cent to $24.20. Sun Hung Kai Properties, the territory's biggest real-estate company by sales, dived 3.74 per cent to $43.70, while Hang Lung Properties dropped 3.14 per cent to $7.70. The properties sub-index slid 2.55 per cent as all six members fell. Deutsche Bank property analyst Andrew Taylor said the developers had faced heavy selling for a number of reasons. 'They've had a very good run for a few weeks, but people are waking up to the fact that the government is not looking at an equilibrium [in supply and demand] till 2006-07, and the fact we're about to descend into another ugly results season.' In addition he said transaction volume had fallen in the past three weeks. A report published on Tuesday by JP Morgan said most property stocks had become overvalued. It said most big developers were overbought except Cheung Kong (Holdings) which still had upside potential. The developer faired slightly better yesterday falling only 1.09 per cent to $49.70. Since late April the properties sub-index had surged almost 30 per cent, spurred by stronger residential sales. According to UBS, 4,175 units were sold in the past six weekends. However, last weekend sales were down with only 451 units sold. The JP Morgan report compared property developers' current and long-term average discount to net asset value. The comparison showed that Hongkong Land was trading at the biggest premium to its long-term average discount in the sector, followed by Sino Land. The bank said Cheung Kong had the most attractive valuation, as it had risen less than 3 per cent in the month to July 18. Daiwa Institute of Research analyst Jonas Kan said it was timely to look at Cheung Kong's valuation relative to Hutchison Whampoa. He said Cheung Kong's share price had rarely traded below Hutchison's since the IT bubble burst more than three years ago. He said Cheung Kong's Hutchison stake accounted for 93 per cent of its market capitalisation, against an average of 76 per cent since 1990. Excluding its Hutchison stake at market value, Cheung Kong was trading at a net asset value of 78 per cent against an average of 46.2 per cent since 1990. 'We think Cheung Kong now represents cheap exposure to Hutchison,' Mr Kan said. 'Given that major property stocks such as Sun Hung Kai, Henderson and Sino have rebounded in the past two weeks, we do not expect the valuation gap between Cheung Kong and Hutchison to last long.' CLSA property analyst John Saunders does not take such a bearish view on the property sector in the medium term. He said much market negativity was because everyone had been focusing on the supply side on the assumption that the demand side would not improve, CLSA had a positive macro-economic forecast for next year, expecting unemployment to fall and gross domestic product to grow, and as a result demand for new units to rise.