PETALING JAYA: The property market is “sailing through a storm” with many uncertainties swirling about and buyers are unlikely to commit to big-ticket items like properties and hire purchases, UOB Kay Hian said in a report.
This will result in weaker sales and 2020 forecast earnings, with property developers likely to revise downward their sales targets.
“Some have already done so... and will strategise future pipeline launches to achieve optimum sales, ” the report prepared by analysts Farhan Ridzwan and Abdul Hadi Manaf said.
The report said some companies are “in distress zones” but they will be able to deliver positive operating cash flow despite not securing new property sales.
The report said companies are also confident of meeting short-term debts via cash in hand and progress profits in coming quarters.
During this MCO period, developers cannot recognise progress billings, market/promote and secure new property sales and are unable to convert bookings into sales and purchase agreements (SPA) pending legal documentation. This impacts on their earnings.
The analysts are, therefore, lowering property sales targets and new launches by developers, which will effectively lower developers’ billings of unbilled sales and result in year-on-year decline in earnings.
The report said the sector had, in the past, under performed relative to the FBM KLCI as a result of over supply and affordability issues.
The property index has plunged to by 30% year-to-date, with the lowest low in 2020 a 40% drop, the report said.
While the “chain effect” from the economic uncertainties adversely hamper overall property demand, the broker does not rule out the possibility of oversupply of properties from both primary and secondary markets, the report said.
The report said the low crude oil prices, compounded by the Covid-19 pandemic has resulted in Bank Negara revising its forecast for Malaysia’s 2020 economic growth to the range of -2% to 0.5% and this would result in a higher unemployment rate.
“Bank Negara expects a rise to 4% in 2020 vs 3.3% in 2019, ” the report.
The chain reaction effect is that buyers are expected to “refrain” from buying despite being “spoilt for choice” amid the economic uncertainty.
Some may pull out from sales bookings secured earlier, the report said.
Owners may sell their properties at discounts, which would result in prices pressed down prices, which would impact pricing in the primary market.
The sector is trading at compelling valuations with no clear catalysts in the foreseeable future.
The analysts are advising investors to accumulate stocks with diversified earnings exposure and lean balance sheets with Sunway Bhd and MRCB as their top picks.
Property consultants from the central region of the Klang Valley, Penang and Johor said the recent events since late February, the pandemic and oil price plunge will generally weigh heavily on consumer confidence going forward.
Association of Valuers, Property Managers, Estate Agents and Property Consultancies in the Private Sector (PEPS) president Michael Kong Kok Kee said consumer confidence is at all time low.
There may be some who may be tempted to buy when prices reach a certain level but generally, confidence needs to return.
The pandemic situation is still revolving here and on a global scale and early this week saw futures contract for West Texas Intermediate crude oil price going below zero.
As for foreign buyers, CBRE|WTW managing director Foo Gee Jen said given the current conditions, it is safe to say any foreigners including the expatriates would not want to be in other parts of the world except their homeland.
Separately, Penang-based property consultancy Rainer & Horne International senior partner Michael Geh said Penang property is expected to see more realistic and affordable prices going forward.
Knight Frank executive director Mark Saw, also from Penang, said the industrial sub-sector will continue to be a beacon of Penang’s economy.