PETALING JAYA: Property developers are unlikely to increase their launches in 2024 significantly, given the market’s current unpreparedness to absorb a higher volume.
This hesitation is driven by the anticipation of moderate growth in the economy.
Hong Leong Investment Bank (HLIB) Research anticipates a normalisation in billings, with sales and launches expected to experience moderate growth in the foreseeable future.
In light of the projections, the research house has shifted to a less bullish stance on the sector, downgrading its rating to “neutral” from an “overweight” call previously.
For the third quarter of 2023 (3Q23), HLIB Research said the sector’s aggregate earnings increased by 6.2% quarter-on-quarter and 19.6% year-on-year (y-o-y), while for the first nine months of the year (9M23) earnings increased by 5.1% y-o-y.
“Year-to-date (y-t-d), the sector enjoyed a boost in earnings from an acceleration in billings as developers caught up with construction progress,” it said.
The research house highlighted that the property sector exhibited a good run in 9M23.
“The property sector stood out this year as one of the sectors that performed well as seen from the improvement in y-t-d aggregate numbers in earnings, sales and launches,” HLIB Research said.
It attributed the improvement in earnings primarily to an acceleration in billings recognition driven by improved labour supply this year and higher sales, with the increase primarily attributed to higher new launches y-t-d.
With more new products, the primary market also saw more transactions, according to the research outfit.
“Finally, launches picked up strongly this year from a low base in the preceding year as a result of improvement in supply-side conditions, including easing of labour shortages and costs, and stabilisation in building-material costs,” it added.
In tandem with the sector’s improvement, the Bursa Malaysia Property Index surged 30.9% y-t-d, contrasting with negative 3.3% of the FBM KLCI.
“Delving a bit deeper on the outperformance of the sector, we would notice that much of the sector’s improvement was supply-side driven,” the research house explained.
It said developers enjoyed an earnings boost due to higher progress billings from the acceleration in construction activity.
However, this effect should dissipate in 2024, as the research house expect a normalised level of billings ahead.
Secondly, HLIB Research said the improvement in sales was partly due to some buyers shifting from the secondary to primary market, as more new products are available in the primary market.
“We do not think property demand has changed much this year, given that the domestic economy has only seen moderate growth so far this year,” it added.