This article first appeared in The Edge Financial Daily on January 30, 2019

Property development sector
We maintain neutral. With the launch of the National Housing 2.0 yesterday, the housing and local government ministry (KPKT) revealed that the National Housing Policy 2018-2025 (NHP 2.0) outlines five focuses, 16 strategies and 57 action plans. The five focuses are: i) providing quality housing for all; ii) enhancing accessibility and affordability of home ownership; iii) cohesive neighbourhoods; iv) improving coordination between housing development and transportation; and v) strengthening institutional capability to ensure the smooth implementation of the NHP 2.0.

The National Affordable Housing Policy (NAHP) will be a sub-policy under the NHP 2.0 to provide guidelines on the development of affordable homes. KPKT Minister Zuraida Kamaruddin said the NAHP aims to provide quality affordable houses to the bottom 40% (B40) income group. She also said that affordable homes must be at least 900 sq ft and priced below RM300,000.

The ministry also aims to build one million units of affordable homes for the B40 within the next 10 years, and is exploring the possibility of developing affordable homes on wakaf land.

As larger affordable homes could be negative for developers, the size of affordable homes is in the range of 700-800 sq ft (Kuala Lumpur City Hall minimum requirement is about 700 sq ft). We think larger affordable homes could further erode developers’ margins if no incentives or subsidies are given to private developers.

According to the New Straits Times article dated May 25, 2017, bumiputera developers that are developing wakaf land (inalienable endowment land in Islamic jurisprudence) offer properties at 20% below the market value, specifically for Muslim buyers. This could benefit niche developers such as UDA Holdings Bhd (not rated), which has expertise in developing wakaf land, and could lower house prices due to cheaper land cost, in our view.

The home sales exposition, which will be held in March 2019, aims to clear the backlog of unsold residential properties. This campaign could create a feel-good factor for the property sector in the short term, but affordability is still the main issue.

We do not see any extra perks for buyers to purchase properties at the campaign, unless there are extra incentives or lucrative markdowns in property prices. We gathered that the majority of developers already offer about 10 to 15% discounts/rebates for the developer’s unit.

 Our top pick for the sector is Sime Darby Property Bhd (target price RM1.29). We see continuous improvement in its property development division and new property sales. We believe its massive land bank is an advantage in addressing any change in future product demand. — CGSCIMB, Jan 29