Long road to recovery for property sector

Alliance DBS Research likes Sunway for its focus on sustainable township developments with multi-disciplinary expertise which has resulted in superior integrated "build-own-operate" model with a proven track record.

KUALA LUMPUR: Alliance DBS Research estimates that Malaysia’s property market will need at least another three years to absorb the unsold properties, assuming status quo in historical transaction volume.

“Therefore, a meaningful recovery for the property market is only expected by 2023, ” it said in a research note on Thursday.

It said the large and growing property supply overhang remains the key stumbling block for the sector’s recovery, resulting in weak sentiment among buyers and investors.

“Based on data from the National Property Information Centre (NAPIC), we estimate that Malaysia’s property market will need at least another three years to absorb the unsold properties, assuming status quo in historical transaction volume, ” it said.

Alliance DBS Research pointed out developers will continue to face challenges to replenish their property sales as they draw down on unbilled sales, suggesting weak earnings visibility going forward.

The supply glut will only intensify the competition among developers as weaker players could adopt a more aggressive pricing just to monetise their unsold units.

In addition, depressed rental yields may further discourage investors from entering the market, exacerbating the already weak sentiment in Malaysia’s property market. Heightened external uncertainties also continue to undermine confidence with the anticipation of an economic slowdown.

“Property stocks are currently trading at multi-year low at 0.49 price/book value (P/BV) which is two standard deviation below its 10-year mean, pricing in the worst case scenario.

“While there is a lack of imminent catalysts, we continue to favour developers with clear earnings visibility and decent dividend yields to tide over the challenging times.

“We like Sunway for its focus on sustainable township developments with multi-disciplinary expertise which has resulted in superior integrated ‘build-own-operate’ model with a proven track record.

“It is set to resume its growth trajectory with projected FY18-20F earnings compound annual growth rate (CAGR) of 8%, contributed by strong performance across its key divisions in property development, construction, healthcare services and investment property, ” it said.