This article first appeared in The Edge Financial Daily on July 5, 2019

KUALA LUMPUR: While monthly property loan applications and approvals increased in the first four months of 2019, developers may still find it challenging to sell products that could provide them with sustainable margins.

According to HLIB Research, property developers are expected to face weak demand for houses priced RM300,000 and above moving into the second half of 2019 (2H19).

This is despite indicators such as loan approvals showing signs of growth in the near term, which could be further supported by the Home Ownership Campaign and the cut in overnight policy rate.

In 2018, houses priced below RM300,000 made up the biggest proportion of transacted volume in 2018, but products at such prices generally do not provide sustainable margins for developers.

The research house observes that the number of overhang residential units more than tripled to 32,313 in 2018 from 10,181 back in 2014.

Of the total, 62% of them were priced above RM300,000, representing 88% in terms of value.

“Despite the positive indicators, we believe these improvements can be largely attributed by the pent-up demand from the ‘wait and see’ approach taken during the 14th general election period, which led to a low base effect in 2017.

“We believe the housing market is currently priced beyond the affordable range of the mass population in Malaysia. Nonetheless, we believe property developers with good branding and a well-differentiated product will continue to entice demand,” it said in a note yesterday.

HLIB Research maintains a “neutral” stance on the sector given the absence of near-term catalysts, although it does not rule out a possible mild recovery of interest towards the sector given the trough valuations.

Its top sector pick is Sunway Bhd, with a target price (TP) of RM2.18, given its mature investment properties, growing trading and quarry division, and potential listing of its healthcare business.

At a TP of RM2.75, MB World Group Bhd is its small-cap pick given MB World’s first-mover advantage to capture the spillover effect from the growth in Petroliam Nasional Bhd’s Refinery and Petrochemical Integrated Development project in Pengerang and Desaru Coast.