THE property sector has more room to run as the economy starts to recover in the second half of 2021 with herd immunity to Covid-19 expected by end-2021, according to PublicInvest Research.
The research unit has upgraded its property sector call to “overweight” on expectations that sector valuations will improve with better pre-sales kicking in.
Property players are now on a stronger footing with their “kitchen-sinking” of inventories last year, and have proven their resilience despite a few months of zero revenue due to lockdown restrictions, says the research unit.
It notes that cyclical stocks are starting to see recovery pick up speed after the Covid-19 vaccination drive started early this year.
The research unit also expects the momentum of property sales to continue into the second half of 2021 (if not better) with the Covid-19 vaccination programme gaining more traction.
“Based on new launches of late, we note that the appetite for property is still good, with some launches taken up within days. For example, S P Setia Bhd reported that sales for the first quarter of 2021 were encouraging despite the weak market sentiment,” says PublicInvest Research.
Acorus at Setia EcoHill 2 in Semenyih was launched via a special online preview, which saw its double-storey terrace units (20ftx65ft) being fully taken up before Chinese New Year.
Following this success, Acorus 2 was launched in March and 70% of the units were taken up on the first day of its launch.
The latest phase of Setia Alam‘s Bywater Homes collection in Shah Alam, Plenum, also received overwhelming response from its online launch in mid-March, as all its double-storey units (22ftx70 ft) were fully booked within an hour.
More recently, Glades of Westlake (with a gross development value or GDV of RM156mil) – which is the second last island phase of Setia Eco Glades in Cyberjaya – was launched towards the end of March.
The project saw almost 70% of its double-storey semi-detached homes (41ftx85ft) priced from RM1.8mil and bungalows (59ftx85ft) priced from RM3.1mil being booked within just three weeks of its launch.
PublicInvest Research also points out that based on recent National Property Information Centre (Napic) data, the residential overhang situation has improved slightly with 29,565 overhang units worth RM18.9bil recorded in the fourth quarter of 2020 (with a further decrease of 0.3% quarter-on-quarter or q-o-q in the first quarter of 2021), a drop of 3.6% in volume.
Meanwhile the “unsold-under construction” and “unsold-not constructed” numbers also improved, dropping to 71,735 units (2019: 72,692 units) and 12,975 units (2019: 16,774 units), down by 1.3% and 22.6% respectively primarily due to the cautious stance of most developers in launching projects, as most were focused on clearing inventories.
Separately, in the fourth quarter of 2020, planned supply increased by 0.8% q-o-q but was 2.6% lower year-on-year (y-o-y).
Johor still has the highest number and value of overhang in the country with 7,030 units worth RM5.48bil, accounting for 23.8% and 29% respectively of the national total.
Meanwhile, Selangor (4,889 units), Perak (3,637 units) and Kuala Lumpur (3,023 units) are among those states with the highest overhang.
In terms of value, the second highest was Selangor (RM4.29bil), followed by Kuala Lumpur (RM2.92bil) and Perak (RM1.16bil).
By type, condominium/apartment formed 51.9% (15,354 units) of the national total overhang, followed by terraced houses (28.1% or 8,306 units).
The research unit notes that in the first quarter of 2021, residential sales improved by 26% y-o-y but eased 6% q-o-q.
Despite loan approvals dropping by 17% y-o-y, loan applications were steady with a 2% y-o-y increase, suggesting property demand is still healthy though financing is still difficult given the economic stress.
The ratio of loan approvals against loan applications for the purchase of residential property stood at 35% in 2020 versus 43.2% in 2019. Interestingly, residential loan applications for January and February 2021 started with an increase of 62% and 2% while residential loans approved moved up 26% and 15% respectively, indicating positive buying momentum.
PublicInvest Research also points out that riding on recovery hopes, the property sector has outperformed the benchmark FBM KLCI by more than 5% year-to-date, primarily on positive tailwinds on low mortgage rates, impending economic recovery, Home Ownership Campaign (HOC) initiatives and various stimulus measures by the government.
The property sector is currently trading at an undemanding 71% discount to the book value.
The research unit also notes that the property sector is now increasingly being consolidated, dominated by a few large property players with land banks that have a GDV potential of almost RM100bil.
“We estimate that the top-seven developers alone have more than 70% of the market share in Malaysia out of more than 1,000 property developers.
“The big developers could benefit the most if the sector rebounds going into next year with their scale advantage and well-located land banks with low holding costs.”
PublicInvest Research has upgraded its stock call to an “outperform” on S P Setia (target price RM1.25), Eco World Development Group Bhd (target price 98 sen) and Sime Darby Property Bhd (target price 79 sen).
It also has “outperform” calls on IGB Bhd (target price RM2.70) and LBS Bina Group Bhd (target price 69 sen).