IN spite of the present sluggish property market, the KL Property Index (made up of the listed shares of property companies) has seen a pick-up in its performance this month since hitting a nine-year low on Oct 30.
So far this month, the index has improved 5%. While it might be just a small margin, the more optimistic industry observer sees it as a sign that the property sector is bottoming out.
Maybank Investment Bank Research (Maybank IB) in a recent report says the recovery moves over the past two weeks seem to have validated the reversal signal, thus effectively ending the current downcycle.
Given a pick-up in momentum, the research house expects a further rebound in the near term.
“The KL Property Index may test the upper resistance of 855 points and subsequently 910 points in the short to medium term, ” it says.
Maybank IB highlighted four property-related stocks, namely SP Setia Bhd, Ewein Bhd, Sime Darby Property Bhd and MALAYSIAN RESOURCES CORP Bhd (MRCB), that have experienced a significant increase in momentum and buying interest.
For this month, SP Setia’s stock has risen 9%; MRCB has gained 4%; Sime Darby Property increased 15% while Ewein’s share price has been flat.
AmInvestment Bank in a recent report said it was neutral on the local property sector as it saw no sign of a recovery.
“We maintain our neutral view on the property sector as we do not anticipate earnings surprises in the short to medium term. Our top picks for the sector are Sunway Bhd, given that its local and overseas property launches have been generally well received due to good locations and diversified income base.”
Its other top pick is IOI PROPERTIES GROUP BHD, which AmInvestment Bank says is banking on a strong contribution from its property development projects, particularly in China and Singapore.
For the month of November, shares of Sunway and IOI Group have risen more than 5% and 11% respectively.
“We may upgrade our stance for the property sector to overweight if banks are to ease lending policies on properties and consumer sentiment is to improve significantly, ” says AmInvestment Bank.
Citing a survey taken in the first half of 2019 by the Real Estate and Housing Developers’ Association (Rehda), AmInvestment Bank says 25% of the respondents were pessimistic; 65% neutral while only 15% were optimistic of the property market’s outlook.
“With most respondents being neutral, it is 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 the first half of 2019, 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.”
Commenting on the office sub-sector, CBRE|WTW managing director Foo Gee Jen says the special investment incentive package by InvestKL to attract Fortune 500 companies and unicorn firms will help to ease the office oversupply within the Klang Valley.
Knight Frank Malaysia corporate services executive director Teh Young Khean shares a similar sentiment.
“Up to RM1bil a year worth of customised packaged investment incentives have been pledged to encourage inbound investment from Fortune 500 companies and global unicorns in the high technology, manufacturing, creative and new economic sectors over the next five years.
“By generating more economic activities and creating more job opportunities, this measure will drive higher demand for commercial real estate as more companies set up new businesses/ expand existing businesses. This augurs
well for the current tenant-led
office market, ” he says in a statement.
AmInvestment Bank however is less than optimistic about the outlook for the local office sub-sector.
“The outlook for the office sector is negative in the medium term due to oversupply, as 15 million to 20 million sq ft of additional office space in Kuala Lumpur are targeted for completion in the next three to four years while market absorption remains lagged, ” it says.
Separately, Foo says the government’s policy to lower the threshold on high-rise property prices in urban areas for foreign ownership from RM1mil to RM600,000, is a double-edged sword.
“The government needs to be cautious to prevent exposing the domestic property market and genuine local homebuyers to unnecessary competition and speculation.
“The government could consider attaching some conditions. For instance, the lower threshold only applies to existing stock and excludes new launches, in order to have a more targeted effect of easing overhang, ” he says in a statement.
AmInvestment Bank says this
policy is however subject to the agreement by state governments.
“So far, only the Penang state
government has responded but the threshold was set at RM800,000 instead of RM600,000. Rehda hopes to see support from more state governments and lower their threshold for foreigners.”
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