KUALA LUMUPUR (Jan 15): Affin Hwang Investment Bank Bhd has maintained its "neutral" call on the property sector and said market conditions remain challenging.

In a property sector update today, the research house said it expects property demand to see a slow recovery in 2020 given the affordability issues and weak market sentiment.

"We expect sector core earnings per share [EPS] to rebound 6% year-on-year [y-o-y] in 2019E from a low base after an 18% y-o-y contraction in 2018.

"Sustained revenue growth and a slow recovery in profit margins should drive core EPS growth of 7% y-o-y in 2020E," the research house said, noting that the moderate net gearing level will allow most developers to weather the current industry slowdown.

Affin Hwang further noted that most property developers will report weaker sales in 2019 with fewer new property launches.

However, the Home Ownership Campaign (HOC) stamp-duty waiver extension to the end of 2019 supported the recovery in housing demand.

It believes that the Budget 2020 measures to liberalise foreign ownership of condominiums and serviced apartments, introduce a government-supported Rent-to-Own scheme and recalibrate the real property gains tax will sustain the recovery in 2020.

Affin Hwang stated that the residential property overhang fell 3.8% year to date (YTD) to 31,092 units in the first nine months of 2019, representing 25.7% of total units launched, while the total value of overhang units fell 5.5% to RM18.77 billion as at the end of the third quarter of 2019 (3Q19).

"According to the Housing and Local Government Minister Zuraida Kamaruddin, the HOC generated total sales of RM23.2 billion in 2019, surpassing the government's initial target of RM17 billion," it said.

The research house believes overhang units fell further in 4Q19, driven by last-minute buying to benefit from the HOC stamp-duty waiver.

"Similarly, aggregate inventories for the property developers under our coverage fell 11% YTD to RM19.5 billion at end 3Q19," Affin Hwang said.

The research house said its top buys are Sunway Bhd, IOI Properties Bhd and UOA Development Bhd.