PETALING JAYA: Investor sentiment towards property stocks have improved compared to a few months ago on stronger sales at recent property launches.
CIMB Research said in a report that this has improved investor perception concerning the demand for properties and eased concerns about speculators’ fire sales affecting property sales in the primary market.
“Most funds still underweigh property stocks in their portfolios but we sensed that sentiment on the sector had improved, compared with during our roadshow in late March 2016, when there were grave concerns about the perceived oversupply of properties and the decline in housing affordability for the general public,” the research house said.
Defined as units that have been booked but whose loans may or may not have been approved, the high take-up rate signifies that consumer strength may be returning to the property market.
Besides that, the research house expects developers to launch more mass-market properties in the coming months.
CIMB Research said the seven property stocks under its coverage had lined up a series of properties and are sticking to their launch targets. From the seven, a majority of these properties target the mass market and CIMB Research expects them to achieve good take-up due to the undersupply of mass market properties in the past few years.
Strong take-ups could further improve investor sentiment about property stocks.
“A recovery in property sales in the second half of 2016, driven by improving homebuyer confidence and more launches of mass market properties, could trigger a re-rating in property stocks’ prices,” it said.
CIMB Research analyst Saw Xiao Jun said the supply of affordable housing depended on the developers and their land bank.
“While there may be land available for the development of affordable housing, the land is usually expensive, whereby developers will not be able to earn sufficient margins to cover the land and investment costs,” he said.
Investors remain underweight on property stocks for now due to the absence of a strong catalyst for property sales in the near term.
“For investors who are concerned about falling into a value trap but want exposure in property, we recommend stocks with decent dividend yields and strong management, as they offer stable returns as well as share price upside when the recovery in demand for physical properties gains strength,” said CIMB Research. These stocks include LBS BINA GROUP BHD, MAH SING GROUP BHD and UOA Development Bhd.
ECO WORLD DEVELOPMENT GROUP Bhd remains CIMB Research’s top sector pick despite the company’s prospective dividend yield being less than 1%.
The research house believes that Eco World offers the highest share price upsale as it is the most leveraged, financially and operationally, among the developers under its coverage.