Land bank replenishment

Sunway Group, Mah Sing Group Bhd and UEM Sunrise Bhd, with their relatively low net gearing, have each entered into two land acquisition deals respectively year-to-date.

THE pandemic might be having an adverse impact on the property sector, but this has not stopped developers, especially those with strong balance sheets, from actively acquiring more land.

An analyst with a local bank-backed brokerage points out that land acquisition, especially during a downturn, is evidence that developers are optimistic that the market will recover.

“For many developers, land acquisitions are made based on future expectations, not on current circumstances.

“If they feel that the market will not improve, then it’s more likely that that will hold back their purchases, ” he says.

UOB Kay Hian in a recent report notes that there have been robust land-banking activities focused on the central region.

“Year-to-date, we have seen developers with strong balance sheets in buying mode to replenish their landbanks for future developments. Sunway Group, Mah Sing Group Bhd and UEM Sunrise Bhd, with their relatively low net gearing, have each entered into two land acquisition deals respectively year-to-date.

“These parcels of land are located within the Klang Valley, with a potential gross development value (GDV) of between RM600mil and RM1.3bil. We deem these land deals to be fair as the cost-to-GDV is below 20% of the industry’s acceptable range.”

UOB Kay Hian adds that many of these developers have been unlocking asset value to strengthen their balance sheets.

“S P Setia, which has a relatively high gearing level, has disposed off 960 acres of land with an estimated disposal gain of RM290mil. This is in line with the group’s strategy to monetise its non-strategic landbank to strengthen cash flow.

“Separately, Sunway is acquiring Multicare Health Pharmacy that owns 76 stores in an effort to complement its healthcare division.”

The research house notes that Sunway’s healthcare unit is embarking on an expansion journey, which would allow the group to build a formidable growth engine and unlock value eventually via listing of its healthcare unit. “We expect more asset monetisation activities in the industry given the challenging outlook for the property market, ” says UOB Kay Hian.

Separately, AmInvestment Bank says developers targeting the affordable segment have performed well with their savvy execution team.

“Mah Sing, which focuses in the Klang Valley, delivered a core net profit surge of 30% year-on-year while Lagenda in Perak registered a 20% quarter-on-quarter increase during the first three months of this year.”

On a separate note, AmInvestment Bank says it is remaining neutral on the local property market for now.

“We are cautious on the sector due to the generally still elevated home prices, banks remaining cautious in residential property lending and housebuyers’ inability to qualify for a home mortgage due to their already high debt-to-service ratios.

“In addition, the still subdued consumer sentiment and dented job security against a backdrop of the prolonged pandemic are holding consumers back from committing themselves to the purchase of big-ticket items, particularly, a house.”

AmInvestment Bank reiterates that it sees a bright spot in the affordable segment catering to owner-occupier house buyers, compared with property investors and speculators.

“This basic demand for housing is driven by new household formation, backed by a relatively young population demographic, rapid urbanisation and the trend towards single-person households and nuclear families versus extended families.”

Given the current uncertainties in the property market, an analyst says the extension of the Home Ownership Campaign (HOC) will help provide a much needed buffer to property developers.

“The campaign was supposed to end in May, but has been extended until the end of this year.

“When the decision was initially made to extend the HOC until May, no one expected us to still struggle with our Covid-19 situation today.

“But we still are and the multiple lockdowns we’ve had this year is having an adverse impact on the property market.”

He adds that it only makes sense to extend the HOC, as the campaign was pretty much a “lost cause” in the first half of this year as the number of daily infections just kept escalating.

“January and February were pretty much lost due to the implementation of the movement control order 2.0. Things picked up in March and April but then the country went into lockdown again in May.

“So, there wasn’t much of an HOC to begin with in the first half of 2021, ” he says.

With the ongoing HOC, AmInvestment Bank estimates that the 2021 stamp duty exemption for residential homes priced between RM300, 000 and RM2.5mil could save up to 4% of purchase cost, thus potentially spurring consumer sentiment.

“Together with the extension of the HOC that could lead to developers offering discounts of up to 10%, this will be positive for developers under our coverage who already target the affordable segments, except for Lagenda which offers housing priced below RM300, 000.

“We believe that this could help alleviate the overhang situation while the clearing of unsold stocks will generate cash flows despite the lower margins and reduce financing requirements.”

The HOC was initially kicked off in January 2019 to address the overhang problem in the country.

The campaign, which was initially intended for six months, was extended for a full year.

It proved successful, having generated sales totalling RM23.2bil in 2019, surpassing the government’s initial target of RM17bil.

The government reintroduced the HOC in June last year under Penjana to boost the property market after it was adversely affected by the Covid-19 pandemic.

In March this year, during the Real Estate and Housing Developers’ Association’s briefing on the property market for 2021, its president Datuk Soam Heng Choon revealed that since the HOC was reintroduced last June, a total of 34, 354 residential units valued at RM25.65bil had been sold as at Feb 28, 2021.

UOB Kay Hian says the RM25.65bil achieved as at February accounted for about 39% of 2020’s total transacted value for residential properties, which amounted to RM65.9bil.

“Most of the property companies under our coverage generated 50% to 80% of their total property sales from the HOC in 2020 and 2021. We believe the HOC extension should give some buffer to property developers as the current lockdown and the supply glut issues could continue to pressure developers’ earnings.”

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Property , HOC , 2021 , Sunway , Mah Sing , UEM Sunrise ,


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