Compared with the benchmark MSCI China index, "the sector has underperformed by almost 30% since July 2009," analysts Sakthi Siva and Kin Nang Chik said in the report.

"Chinese real estate is the most undervalued among China, India, Singapore and Hong Kong," they added, when considering price-to-book ratio versus return on equity.

Credit Suisse property analyst Jinsong Du's top pick is construction and contracting giant China Overseas Land & Investment; he also likes Beijing-based property developer Sino-Ocean Land Holdings. Their model portfolio also includes state-owned oil company CNOOC ( CEO - news - people ) and coal mining behemoths China Shenhua Energy and Yanzhou Coal Mining Company ( YZC - news - people ), as well as major lenders China Construction Bank and Bank of China. (For more advice for investors, see Forbes' 2010 China Investment Guide.)

There are some risks to these investments, analysts admitted. For one thing, Chinese property prices could face headwinds and, as a result, dampened growth.

"There is a dangerous bubble in real estate," he said. "The problem is already so severe that I don't know what they could do to fix it."

A chief economist for China's first Sino-foreign investment bank, China International Capital Corp., Ha Jiming, concurred, but added that he doesn't foresee a spectacular failure ahead.

"The biggest bubble is in property prices, particularly in some large cities and tourism destinations. The pace of monetary expansion in 2009 was excessive," he told Forbes this month. "[But] I won't call a short-term adjustment a collapse. As long as prices start to soften, people will rush to buy again." (See Beijing bureau chief Gady Epstein's full interview with Mao and Ha.)

But Credit Suisse analysts believe the threat of a possible property bubble is limited to Shanghai and a few other major metropolises.

"Residential property prices in Shanghai rose by 52% in 2009," they wrote. "But if we look at Beijing in 2009, the rise was a more moderate 14%." (See "The Real Estate Developer" for Soho China chief Pan Shiyi's views on 2010 property trends in Beijing.)

The hot property market is good news for other stocks, too, like China's largest real estate agency, Shanghai's E-House Holdings Ltd. In one quarter, the value of properties sold went from $1 billion to $4.3 billion. E-House owns 50% of the real estate listing database China Real Estate Information Corp., which went public in October and is one-third owned by online media goliath Sina Corp

Some expect prices to fall in 2010 after reaching unsustainable highs over the last few years. But Luke Sullivan, senior vice president and portfolio management at Cohen & Steers in Hong Kong, said he believes in the strength of the sector.

"Last year we had an extremely strong rebound in overall apartments purchased. We expect that to come down by double digits in 2010," he told Forbes in January. "Having said that, it is important to reiterate that the underlying foundations remain sound. In the Chinese market, the government did a good job putting downside pressure on the market when things were starting to get very speculative in 2007." (See Sullivan's full interview with Shanghai bureau chief Russell Flannery.)

Like Credit Suisse's Du, one of Sullivan's top picks is China Overseas Land & Investment. He also likes residential and investment property developer China Resources Land as well as Hong Kong-based retail property company Hang Lung.

courtesy: forbes.com