KUALA LUMPUR: AmInvestment Research is maintaining its Neutral view on the property sector as it does not anticipate earnings surprises in the short to medium term.
It said on Tuesday its top picks for the sector are: (1) Sunway Bhd (Buy, FV: RM2.03) as its local and overseas property launches have been generally well received due to good locations and diversified income base; and (2) IOI Properties Group (Buy, FV: RM1.73) which is banking on a strong contribution from its property development projects, particularly in China and Singapore.
“We may upgrade our stance for the property sector to Overweight if: (1) banks are to ease lending policies on properties; and (2) consumer sentiment is to improve significantly, ” it said.
AmInvestment Bank recently hosted a luncheon talk with guest speaker Datuk Seri FD Iskandar (the immediate past president of Rehda) to share the Real Estate & Housing Developers' Association’s view on the property sector in Malaysia.
The key discussion was on the property sector’s forces of change, innovative responses and its challenges.
Redha conducted a public survey earlier in 1H2019 on Malaysia’s property market outlook. The survey showed that 25% of the respondents were pessimistic, 65% neutral while only 15% were optimistic of the property market outlook.
The research house Wwth most respondents being neutral, it was not surprising to see most property buyers adopting the wait-and-see attitude on purchases.
On the other hand, statistics by Rehda indicated the number of launches was down by 12% in 1H2019 although sales performance was up 15% for the same period.
“However, none of the developers under our coverage enjoys the 15% sales increase and instead experienced some 10% to 15% drop in average for the same period.
“Developers are more aggressive in clearing inventories by offering discounts. We believe this is a win-win situation as it will help to improve the affordability of the properties while at the same time, developers can realise cash flow from these inventories (despite lower margins), thus providing them huge savings on financing costs while clearing the overhang situation, ” it said.
AmInvest Research said Rehda shared its view on the government’s reduction of the threshold for foreigners to purchase urban high-rise properties from RM1mil to RM600,000.
However, this was also subject to the agreement by state governments on the quantum of change. So far, only the Penang state government has responded but the threshold was set at RM800,000 instead of RM600,000.
Rehda hoped to see support from more state governments and lower their threshold for foreigners.
As for affordable housing, Rehda noted that there was no integrated data available for the demand and supply of affordable housing, income levels, affordability, and pricing in order to provide the right products in the right location with the right pricing.
There were also too many authorities on the building of affordable housing, resulting in duplication and affordable properties being built close to one another.
Rehda hoped the government would tackle this problem with stricter controls to avoid duplication.
“We agree with Rehda that the key problem in the current soft property market is the supply and demand mismatch with many potential buyers having difficulties in obtaining loans due to their already high debt service ratios.
“Nonetheless, this will depend on banks whether to ease the lending policies on properties.
“Meanwhile, the outlook for the office sector is negative in the medium term due to oversupply as 15 million sq ft to 20 mil sq ft of additional office space in KL are targeted for completion in the next three to four years while market absorption is still lagging, ” AmInvest Research said.