THE local property sector has been languishing over the past five to six years since hitting an upswing in mid-2013 when the House Price Index (HPI) showed double-digit growth.
Such bearish sentiment is poised to linger a while longer as the 2H 2021 property sector outlook remains cautious due to the various movement and economic restrictions which can cause a slower-than-expected recovery in the sector, according to AmResearch.
After successfully registering upbeat 1Q CY2021 sales, accounting for 32% of full-year targets on average, the research house foresees the sales momentum of property developers under its coverage to slow down from mid-May with the imposition of the movement control order (MCO) 3.0 which was subsequently followed by a lockdown in June,
“We do not expect the same pace of recovery in 2H 2021 as economic activities are only allowed to resume in phase three (targeted in September) under the National Recovery Plan,” projected analyst Lee Ching Poh in a sector update. “Hence, we do not anticipate positive earnings surprises over the next six to 12 months.”
Moreover, banks have remained prudent in residential property lending to mitigate the risk of more borrowers falling into negative equity and to limit the increase in loan loss provisions.
“Even though loans applied for residential properties reached an all-time historical high in April 2021 – reflecting improved consumer sentiments in the sector – banks’ average approval rate slid to only 34.2% from 37.4% a year ago,” observed AmResearch.
“Potential house buyers may have little room left to take on a home mortgage due to their existing debt service commitments (arising from outstanding study, car or personal loans) while their income have not grown sufficiently during the pandemic.”
This was exacerbated by the softer job market as reflected in the still elevated unemployment rate of 4.7% in January-May 2021 (vs 4.1% year-on-year).
Maintaining its “neutral” call on the property sector, AmResearch regarded Sunway Bhd as its top pick (fair value: RM2.20) given its consistent sales performance despite a soft property market underpinned by attractive products in good locations and a strong brand recognition arising from highly successful landmark developments.
Elsewhere, it also upgraded IOI Properties Group Bhd (fair value RM1.45) to “buy” as the recent price correction offers bargain opportunity to accumulate but downgraded Mah Sing Group Bhd to “hold” (from “buy” previously) with a lower fair value of 95 sen (from RM1.28 previously).
This is given Mah Sing’s high Klang Valley exposure which is subject to high COVID-19 infection as well as a reduction to its glove business’ price-to-earnings ratio (PE) to 12 times from the sector average of 15 times.
“We may upgrade our call on the sector to “overweight” if (i) banks ease lending policies on property purchases; (ii) higher-than-expected economic recovery which significantly improves consumer sentiment; and (iii) the Government introduces additional incentives to encourage residential purchases,” added AmResearch. – July 15, 2021
