Friday 29 Mar 2024
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KUALA LUMPUR: Lack of strong catalysts, less than optimistic consumer sentiment, and higher costs due to the imposition of the goods and services tax (GST) in April, are all expected to further pressure the property market this year.

Some industry players, like Mah Sing Group Bhd, are hoping the weaker ringgit and low global oil prices may mitigate the higher costs that will come about due to the GST.

“With the oil price coming down, manufacturing costs for construction materials may be lower. Hopefully it could reduce the effects of GST. But it’s too early to tell,” Mah Sing managing director and chief executive officer Tan Sri Leong Hoy Kum told pressmen last Wednesday.

In the meantime, the outlook for the market does not look encouraging, given the prevailing weak sentiment, said AllianceDBS Research analyst Quah He Wei.

“We have seen deferred launches, slower take-up and moderating price appreciation,” Quah told The Edge Financial Daily.

He said tighter lending policies, one of the cooling measures enforced by the government on the property sector last year, will continue to be one of the key hurdles faced by developers in selling their products this year, as it is tougher for potential buyers to obtain loans to finance their purchase.

In addition, the implementation of the GST has dampened demand for homes as developers have already started pricing in the tax for their product offerings.

“While property developers would like to protect their margins by passing on the additional cost, the relatively weaker market may not be able to take it,” Quah said.

Post-GST, Quah said transactions of affordable homes will dominate the market as the speculating crowd wane further, leaving the market with mostly genuine first-time home buyers.

“[Hence] we continue to like developers with large exposure in affordable housing, such as MKH Bhd, Hua Yang Bhd and Matrix Concepts Holdings Bhd,” he said. AllianceDBS is also keeping its “neutral” rating on the property segment.

Similarly, JF Apex Research Sdn Bhd analyst Lee Chung Cheng said the property segment will be entering “consolidation mode” this year, as lower sales volume is expected due to tighter lending conditions and the GST.

“Even though demand for housing is still there, the tighter lending criteria have dampened sales,” he said, adding that the sales of affordable housing may also be partly affected by the stricter loan criteria.

He also noted that there has not been a spike in property purchases ahead of the implementation of the GST, and expects sales volume to be even weaker post-implementation, especially for commercial properties.

On housing prices, Lee expects prices to rise by about 3% in 2015, but said the quantum of increase could vary depending on demand. JF Apex currently has a “market weight” rating on the property segment.

Interestingly, Thiam Chiann Wen of TA Securities has turned bullish on property stocks, on a valuations perspective, and upgraded the sector to “overweight” from “neutral” as the segment was trading at an undemanding earnings per share of 12.5 times and book value per share of 1.1 times, compared to its historical average price-earnings and price-to-book value ratios of 15.7 times and 1.7 times respectively.

One of the factors behind the revision of the research house’s call on the sector is the diminishing policy risk, as Thiam expects there to be no further cooling measures from policymakers in 2015.

Citing data from the National Property Information Centre (Napic), she said the number of property transactions declined 4.8%, while the value of properties climbed slightly by 1.7% in the second half (2H) of 2014, compared with 2H13, indicating that the cooling measures enforced on the property segment have had their intended effect.

“As such, we take the view that it is highly unlikely that Bank Negara Malaysia and the government will introduce further punitive measures in 2015, as they may turn out to be counterproductive if the slowdown in the property market runs out of hand,” she said.

Thiam also thinks the market has already priced in the expected slower sales for property developers post-GST.

Pre-GST, she expects demand for property to pick up — though the figures may not be significant — on the belief that home buyers will try to hedge against GST-driven inflation, which might also be exacerbated by further subsidy cuts as the government attempts to reduce its budget deficit.

The weakened ringgit — which Deutsche Bank predicted last Friday would fall to the 2008 crisis level of 3.73 against the dollar this year on its belief that Malaysia’s “worrying profile of indebtedness” will act as the currency’s Achilles heel — will also add to inflationary pressure as imports will be more expensive too.

“Our economist expects inflation to accelerate to 4.3% in 2015 from 3.3% in 2014,” said Thiam.

TA Securities’ top pick for the sector is Mah Sing Group on account of its diverse range of products, consistent sales and earnings delivery, and its relatively attractive valuations compared with its peers.

 

This article first appeared in The Edge Financial Daily, on January 12, 2015.

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