Property sector likely to recover in H2 of 2018

Key concern: Although mortgage applications and approvals have improved in the first half, the property sector’s fundamentals remain weak, according to Maybank Research.

PETALING JAYA: The Malaysian property sector is expected to recover in the second half of 2018 even as mortgage loans applications and approvals could be bottoming out, according to a Maybank Research report.

The research house is maintaining a “neutral” call on the sector and is expecting an “L-shaped recovery”.

The report said mortgage applications continued to rise at a double-digit pace for the fourth consecutive month at 16.6% year-on-year (y-o-y) in May 2017 while approvals are also expanding at double-digit pace since March.

However, although mortgage applications and approvals have improved in the first half, the sector’s fundamentals remained weak.

“Bankers revealed that they are now more willing to lend particularly to the affordable home segment, despite being cautious on their exposure to the sector,” analyst Wong Wei Sum said in the report.

On a country-wide basis, sales value continued to trend down by minus 4% quarter-on-quarter (q-o-q) to RM16.4bil.

The report said “supply remains the key concern” as unsold units continued to shoot up at a rate of 48% compared with the previous year to 106,394 units.

On a quarterly basis, it was a rise of 18% as at the first quarter of this year compared with a year ago.

The report said that Kuala Lumpur saw its unsold stocks rise by 51% quarter on quarter, and 81% y-o-y. Selangor saw a rise of 10% q-o-q, and 240% on a y-o-y basis, Johor 17% q-o-q and 35% on yearly basis.

Of these unsold stocks, 70,722 units, or 66% were still under construction.

Properties on auction also rose 14.4% compared with the previous year, Maybank IB reseach said.

Besides its concerns on the oversupply issues, the research house said the sector “lacks strong re-rating catalysis.” Hence, the recovery is only expected from the second half of 2018.

It said developers under its coverage fell short of meeting their internal sales targets except for Mah Sing group and Tambun Indah. Most of the other developers delayed their new launches to the second half of 2017 in view of persistent weak buying sentiment, unsold stock clearance and the resubmission of plans for approvals due to changes in unit sizes.

Most developers have shifted focus to affordable housing and landed properties as they put the high-end projects on the back burner, the report said.

Eco World group, the report said, would launch its second affordable township in Semenyih called Eco Forest while Mah Sing group has been aggressively acquiring land in the city centre for high-rise affordable projects.

Glomac has downsized units in Centro V in Petaling Jaya to make them more afforable in terms of absolute pricing, the report said.

Although sentiment has been weak for the sector, it has been an eventful first half in terms of corporate activities, the research house said.

Under Permodalan Nasional Bhd’s corporate restructuring, Sime Darby Bhd is breaking up its business into separate entities, that is, plantation, property and trading while its sister company SP Setia group is buying the entire equity interest of I&P Group Sdn Bhd.

Sunway Bhd has also indicated its intention to list its healthcare business.

The house advised investors to be selective in their stock picks, focusing on developers with right and attractive products and with strong ability to secure sales.