HLIB: Property buyers in wait-and-see mode pending new govt policies post-GE14

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KUALA LUMPUR (July 9): While Hong Leong Investment Bank Bhd says it can't rule out a mild recovery of interest in the property sector given the trough valuation and domestic growth focus theme with possible introduction of new policies, it said developers' full year sales may still fall short of targets, as sales would likely remain soft after the 14th general election (GE14).

This is because potential buyers are seen adopting a wait-and-see attitude, pending more clarity on the direction and policies to be shaped under the new government, HLIB said in a strategy outlook note today.

"As such, any potential pick up in sales is likely to only happen in 4Q18, after more policy clarity and measures, as well as Budget 2019 (Nov 2), which may be too late to catch up to the full-year target then," the note added.

Still, HLIB pointed at positive signs in the market so far, like a structural change, new favourable policies, and the zerorisation of the goods and services tax (GST), with the negatives being the risk of falling short of sale target, policy uncertainty and overhang issue. 

"We believe the structural change from [the] recent GE14 (14th general election) results will have a positive impact on [the] property market in the long run. The pledge to reform [the] housing and property market is one of the promises highlighted in the new government's manifesto. Hence, policies and regulations that could excite the sector such as relaxing end-financing, aggregating the affordable home agency to tackle overhang, and affordability issues, could be on the cards in the near term," the note said.

Zerorisation of GST is expected to reduce building cost as most building materials like steel, cement, sands and bricks, were not subject to the previous sales and services tax regime. HLIB expects this to remain the same in the upcoming reintroduction of the SST.

"Construction price could be lowered by around 1%-2% as estimated by REHDA. The savings can then be passed on to consumers via various marketing perks to improve take-up, or serve as the cushion to margin squeeze from low cost projects. Besides, price of commercial properties should also be lower to buyers," the note added.

Nevertheless, HLIB has maintained its neutral outlook on the sector due to the absence of near-term catalyst, while the affordability issue lingers.

On lending in the property mart, HLIB said the monthly property loan applications was generally flat, and reflected the uncertainties surrounding the GE14 hype, which dethroned the Barisan Nasional government after a 60-year rule.

Since January 2018, HLIB noted that application for property loans inched up by a marginal 0.2% year-on-year, while loan approvals grew 3.4% y-o-y, and non-performing loans remained at a steady pace.

In terms of forecast, HLIB said it has imputed a higher discount of 5% to 10% of the revalued net asset value (RNAV), which is applied across the property sector, to account for the possible prolonged recovery period, and the risk of falling short of sales' targets this year.

On stock picks, HLIB continues to like Sunway Bhd as an under-appreciated property-construction conglomerate with mature investment properties, a growing trading division with potential listing of its healthcare business. Hence it has kept its 'Buy' call on Sunway, with a target price (TP) of RM2.19.

In the small-cap sphere, HLIB prefers MB World Group Bhd, given its first-mover advantage to capture the spill-over effect from the growth of its petrochemical and refinery project at Pengerang and Desaru Coast. HLIB has a 'Buy' call on MB World, with a 12-month TP of RM2.63.