Rerating of property stocks building up on resilient property sales

“Moving into 2024, we expect much of the sector tailwinds enjoyed in 2023 to diminish,” said HLIB Research.

PETALING JAYA: Property sales will likely remain resilient in 2024, albeit at a moderate pace with launches by developers seen normalising.

The sector had a good year in 2023 as developers scaled up their launches as supply conditions improved.

On Bursa Malaysia, the Kuala Lumpur Property Index recorded an impressive return of 34.5% versus the FBM KLCI’s loss of 2.7%.

Hong Leong Investment Bank (HLIB) Research said all property stocks under its coverage recorded good positive returns in 2023, indicating a sector-wide rerating.

“Also notable is that stocks such as Sunway Bhd, OSK Holdings Bhd and Matrix Concepts Holdings Bhd achieved their all-time high stock price during 2023,” it added in a report.

The research house said the sharp rerating of the sector observed in 2023 was due to a correction of an earlier sector mispricing, plus a recovery boosted by transient factors.

“In 2022, despite the sector demand recovery post-economic reopening, the property index declined 8.9%, continuing its downtrend since 2014.

“This created a mismatch where demand and earnings were recovering but stock prices nonetheless continued to slip.”

It said the property sector enjoyed a “triple boost” in 2023 from stronger earnings due to accelerated billings, higher sales with more new products in the primary market and higher launches as supply conditions improved.

“Nonetheless, all of these three factors were not a reflection of a fundamental change in underlying demand dynamics.

“Moving into 2024, we expect much of the sector tailwinds enjoyed in 2023 to diminish,” said HLIB Research.

Firstly, it said the accelerated billings seen in 2023, which was a result of developers catching up on progress to avoid liquidated ascertained damages payment, should dissipate and normalise in 2024.

“Secondly, the higher sales in 2023, in our view, were partly due to some buyers shifting from secondary to primary market as more new products were available in the latter.

“We do not think property demand has changed much in 2023, given that the domestic economy has only seen moderate growth in gross domestic product (GDP).”

The research firm said the moderate growth is expected to continue in 2024 with a projected 4% to 5% GDP growth, based on Bank Negara’s estimate (HLIB Research forecast: 4.8%).

“As developers had scaled up launches significantly in the domestic market in 2023, these products will take some time for the market to absorb.

“As such, developers are unlikely to raise their launches significantly in 2024 and we think sales will also see a similar pace of moderate growth in 2024.”

HLIB Research is maintaining a “neutral” rating on the sector having previously downgraded it from “overweight” in last December.

“Despite an overall ‘neutral’ view on the sector, we nonetheless identified several names under our coverage that have the potential to ‘outperform’. Our top picks are Sunway, OSK, Sime Darby Property Bhd and IOI Properties Group Bhd.”

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