Member ID
User Password

Login
Home  About Us  FREE Registration  Benefits  Contact Us  Partners  News  CRA Act

Latest Credit, Finance & Industry News
Bullish outlook for property developers [02-05-2011]  
    Email to friends.

CIMB Equities Research is bullish on the outlook for property developers.

It said on Friday, April 29 the key points it picked up from the 2010 Property Market Report were: 1) transaction values beat expectations and topped RM100bn for the first time ever, 2) residential prices rose a faster-than-expected 6.7%, the quickest pace since the 1997/8 Asian crisis, and 3) occupancy rates for commercial properties, particularly office space in the Klang Valley, were still weighed down by weak demand and rising supply.

CIMB Equities Research said overall, the performance in 2010 reinforced its preference for property developers to property investment companies.

“We believe that 2011 will be another year of record transactions and think that house price appreciation could, in fact, accelerate. We maintain our OVERWEIGHT on the sector, with Mah Sing as our top pick. Key potential re-rating catalysts for the sector are 1) newsflow on landbanking, 2) strong and record sales for most developers, and 3) accelerating earnings growth,” it said.

Transaction values hit new record

Property transactions rebounded from 2009’s slump, rising 11% to 376,583, thanks to real GDP growth of 7.2%. The value transacted surged 33% to a record RM107.44 billion.

Biggest jump in Penang. Of the big-three property markets in Malaysia, Penang enjoyed the biggest jump of 43% in transaction value, followed by 36% for the Klang Valley and 30% for Johor.

By property type, the biggest increase in transaction value came from development properties which jumped 54% to RM11.74 billion, followed by commercial properties (+45%) and industrial (+44%).

Surprisingly, the value of residential transactions showed the most modest growth of 21%.

House prices

Last year, house prices in all states recorded gains, taking the average gain for the country to a brisk 6.7%, the strongest in the past 13 years which included the mid-1990s property boom.

The Klang Valley enjoyed a strong rebound from the contraction in 2009, with Kuala Lumpur recording the steepest appreciation of 12.2%.

Selangor was in fourth place with a 9% clip while prices on Penang Island gained a moderate 6.7% after a hot pace of 16.8% in 2009.

Johor remained one of the biggest laggards as its price appreciation was the second slowest in 2010. Johor has the dubious distinction of being the only property market where average prices were flat to lower over the past 10 years.

On the Klang Valley, which is the pre-eminent property market in Malaysia with a population of close to 7 million or nearly a quarter of Malaysia’s population, CIMB Research said it was surprised at the pace of appreciation in 2010.

The star performer was bungalows in Kuala Lumpur, which saw a 19% bounce in prices, followed closely by semi-Ds at 16.7%.

This went against the impression it had that 2010 was the year for terraced houses as prices in various areas in KL and Petaling Jaya supposedly surged 20%-30%.

The reality, however, was modest price rises of 8.3% for terraced houses in KL and 10.5% in Selangor. Also surprising was the relatively strong price increase of 9.7% for high rises in KL and 7% in Selangor. This is the fastest pace in KL since 1995 and the quickest in Selangor since 2003.

Over the past two decades, high-rise properties in KL and Selangor have suffered the lowest appreciation and the strong gains in 2010 lend credence to the contention by some quarters that a property bubble is forming.

CIMB Research said it continues to hold the view that there is a good explanation for the strong property prices and that one year’s strong appreciation does not make for a general bubble. 2009 was a weak year during which prices of terraced houses and bungalows in both KL and Selangor fell on average.

“The rebound in 2010 should, therefore, not be a big surprise. Strong gains were also made after the Asian financial crisis and also the years immediately after a year of flat or lower prices,” it said.

The research house said as for prices of high-rise buildings in KL and Selangor, the 20-year CAGR was a miserable 1.5% for KL and 2% for Selangor, way behind the 5.4% CAGR for overall KL and 4.4% CAGR for overall Selangor.

“2010’s gain could be the long-overdue catch-up for that asset class. Part of the reason for the strong property price appreciation is the limited new supply,” it added.

The research house said the supply of completed residential properties in 2010 increased at the slowest pace since 1997. This was true for the Klang Valley, Johor and Penang.

The supply of newly completed residential properties in Malaysia rose only 2.2% in 2010, a drastic slowdown from the 3-12% range seen since 2001. New supply in the Klang Valley in 2010 was only 2.5% and the growth rate was even lower for Johor at 1.7% and Penang at 2.3%.

Within the Klang Valley, Selangor’s supply growth was low at 2.1% compared to Kuala Lumpur’s 3.6%. The state with the highest growth in supply in 2010 was Sabah at 4.8%.

In terms of unsold stock, there was a 21% spike in 2010 to nearly 79,000 units. This came largely from the smaller property markets as well as Johor, which saw a 19% increase. KL, Selangor and Penang saw a decline in number of overhang units, which would explain the higher house price gains in those areas compared to Johor. While the 65% overhang to needs ratio for properties in KL still appears high relative to the national average of 55%, we are not concerned as the overall ratio for the Klang Valley is only 38%.

Commercial properties

Prospects for commercial properties do not look promising as there appears to be significant new supply coming on stream for all types of properties in Malaysia.

For specific locations, there are pockets of bright spots including shophouses in KL, retail space in Selangor and Penang, industrial units in KL, Selangor and Penang as well as hotels in Penang. In these areas, the future supply to current stock ratio is relatively low. The trouble spots appear to be shophouses, office space and retail space in Johor where upcoming supply is massive, as well as hotels in KL and Johor.

Office space

CIMB Research said the overall occupancy rates for office space in the Klang Valley softened last year for the third year in a row.

The drop was mainly due to new supply outstripping demand. New supply in Kuala Lumpur and Selangor increased from 4.2m sq ft in 2009 to 4.4m sq ft while demand growth surprisingly softened from 2.5m sq ft to 2.1m sq ft.

Overall occupancy in the Klang Valley fell 1.4% pts to 82.3% in 2010, after falling 0.9% pts to 83.7% in 2009. In line with the drop in occupancy rates, rental rates also came under pressure and were flattish. Newly completed office buildings in the Golden Triangle took longer to fill and building owners had to reduce rates to attract tenants.

“The only bright spot for office space appears to be the Bangsar belt from KL Sentral to Bangsar  South where rental rates are firm,” it said.

Occupancy rates in the three major property markets – Klang Valley, Johor and Penang – are the lowest in the country.

Source:THE EDGE MALAYSIA
Brought by: www.basisnet.com.my   www.malaysia1000.com.my   www.jobmarket.com.my   www.basis.com.my

Site Map | Best viewed at 1024x768 resolution. | © Copyright BASIS CORPORATION SDN. BHD. (315708-X). | | Share
Customer Notice and Summary of Rights | Personal Data Protection Policy   25-09-2018 08:09 PM