Maybank Investment Bank (IB) Research has downgraded the property sector to “neutral” from “overweight” due to the headwinds it is facing, which ranges from the likelihood of further cooling measures and dwindling catalysts due to the potential deferment of certain large infrastructure and property projects to the possible delay in mega listings.
Hong Leong Investment Bank (HLIB) Research shared the sentiment that the sector was imbued by “subdued sentiment” due to the macro and sector-specific challenges, such as concerns over an oversupply in the property market that would cap the near-term performance of the Kuala Lumpur Property Index. The index has declined 17% from its peak since end-May.
Maybank IB Research analyst Wong Wei Sum wrote in her report: “The listing of Iskandar Waterfront Holdings Sdn Bhd (IWH) is very likely delayed to the first half of 2014.
Meanwhile, IOI Corp Bhd is still confident of re-listing property arm IOI Properties by December, despite difficulties in securing bondholder approval at this stage.
The listing of IWH and the re-listing of IOI Properties would result in a re-rating of existing players, especially Iskandar Malaysia stocks.”
She expects interest in property stocks to remain lacklustre in the short term in the absence of sector catalysts amid policy overhang issues.
“Sentiment towards developers should stay weak in the run-up to Budget 2014 in October, and may only improve after more clarity on Government policy and mega-projects post-Budget,” she said. She also pointed out the possibility of the Government raising stamp duties, adding, however, that the measures taken would aim at curbing speculation while promoting home ownership.
In a note to investors, HLIB Research analyst Sean Lim said statistics from the National Property Information Centre suggested that housing starts in Selangor and Johor had outpaced actual transactions, which reaffirms the concerns of an oversupply.
“We reckon that the high-rise, high-end segment (more than RM700,000 per unit) would feel the brunt of the potential cooling measures by the Government and Bank Negara, as these are developer interest-bearing scheme (DIBS)-financed,” he said.
He pointed out that UOA Development Bhd featured DIBS in almost all its projects, while Mah Sing Group Bhd and UEM Sunrise Bhd were estimated to have an exposure of 30% to 40%.
Meanwhile, landed properties were still enjoying resilient demand supported by owner-occupiers, he said, adding that the brokerage liked Matrix Concept Holdings Bhd and Glomac Bhd for their well-received township developments.
He noted that property as a hedge against inflation following the hike in the petrol price and the strong Singapore dollar against the ringgit that might lure more buyers from the city-state were some of the catalysts, although immediate effect from infrastructure-related catalysts would be limited.
Lim maintained a “neutral” weighting on the sector.