Property Sector Update – Malaysia
Outlook Still Bleak
We expect the outlook for the property market to remain bleak as affordability and stringent lending policies continue to cloud the sector. Nevertheless, property prices in the key states have been relatively stable with the respective house price indices holding up. Johor and Penang have the highest percentages of incoming supply due to the aggressive property launches made in 2012-13 while supply in the Klang Valley region is stable. Maintain MARKET WEIGHT.
WHAT’S NEW
• Sector outlook to remain bleak in 1H16. Demand continues to be sluggish post implementation of the GST. We expect this trend to persist as affordability and stringent lending policies continue to dampen the sector outlook. A number of property developers have downsized their launches and sales targets in 2015, further cementing the near- to medium-term outlook for the sector. However, in spite of the persistent negative newsflow, we believe selected hotspots within the Klang Valley that offer affordable and landed developments would continue to be well sought after.
• Stringent lending policies have impacted the property sector. The lacklustre Malaysian property market was due to: a) uncertainties surrounding the implementation of the GST, and b) prudent lending measures imposed on the property market. However, the developers are focusing on the affordable housing market. Recall that during the Budget 2016 announcement, the government introduced a number of schemes to assist first-time buyers for new homes, including extending the loan support scheme and a 50% stamp duty exemption for them.
ACTION
• Maintain MARKET WEIGHT. As expected, property stocks are trading below their longterm mean valuations in light of the slowdown in the sector. While we believe 2016 would continue to be an uncertain year for the property market due to an incoming supply of new products launched 1-2 years ago, we believe developers with landbanks in selected hotspots would continue to deliver decent sales, thereby enhancing their earnings visibility.
• Position for high-yielders. We opine investors position for developers with decent dividend yields, which include Sunway and SP Setia, both of which are expected to deliver dividends of 4-6%. Investors with stronger risk appetite should consider Sunsuria, which is expected to deliver a sharp upward earnings trajectory as we expect its maiden launch of the Sunsuria Serenia township to be well received.
ESSENTIALS
• Affordable houses to continue to be in demand. We believe growth in 2016 would still be supported by demand for affordable homes, mainly fuelled by a rapidly-growing population between the prime age of 25-45, supported by an increasingly affluent middleclass. Also, the increase in the maximum threshold for civil servants’ mortgage loans to RM600,000 (from RM450,000) would further support demand for affordable homes, particularly in the Klang Valley.
ADDITIONAL CHANNEL CHECKS
• Developers have not launched significant developments over the past three months.
• Reception of recent launches of landed developments in the Klang Valley has been positive while high-rise projects continued to see slow response.
• Reception of recent launches of landed developments in the Klang Valley has been positive while high-rise projects continued to see slow response.
• Isolated cases of properties going under the hammer, particularly those that were launched on the 5% deposit-95% loan schemes with DIBS.
• A potential oversupply of London properties due to be delivered within the next 12 months,particularly those priced above £1m, could see buyers reneging and that could impact the Battersea Power Station development.
Source: UOBKayHian 15/02/2016