Brighter outlook for property sector but all upsides have been priced in

AGAINST the backdrop of all the positives of the real estate sector having been priced in – thus offering limited upside to the target prices of property developers under its radar – Maybank IB Research has downgraded the sector to “neutral” from “positive”.

The research house sees downside risks from (i) domestic politics post-the state of emergency which is slated to end on Aug 1; and (ii) worse-than-expected liquidated ascertained damages (LAD) compensation due to the latest ruling by the Federal Court.

“Property stocks have performed well since we upgraded the sector to tactical ‘positive’ in mid-December 2020,” commented analyst Wong Wei Sum in a sector update.

“While we are holding to our belief that the property sector is poised for recovery in 2021, share prices appear to have largely priced in the positives.”

Despite its gloomy outlook, Maybank IB Research highlighted that the property sector has performed well year-to-date (YTD) with the KL Property Index having outperformed the FBM KLCI by +5.5% (FBM KLCI’s +0%).

The research house attributed the sector’s outperformance to improving sales/earnings outlook on better economic outlook, a historically low interest rate environment and pent-up demand as well as corporates’ cleaner operations post major kitchen sinking in 2020.

Moreover, 4Q 2020 National Property Information Centre (NAPIC) statistics continued to show positive signals.

Residential property sales have recovered further (+7.8% quarter-on-quarter [qoq] and +6.4% year-on-year [yoy]) in value while unsold stocks continued to improve (by -1.9% qoq and -4.9% yoy in units) in 4Q 2020 on attractive marketing packages amid a low interest rate environment.

This is despite FY2020 sales having declined by -9% yoy in value due to COVID-19 lockdowns.

“Based on our conversations with developers, sales momentum remained strong in 1Q 2021 despite the second movement control order (MCO2.0) with most developers expecting a better sales outlook in FY2021 though it may be coming at the expense of lower margins on moderated pricing,” projected Maybank IB Research.

With regard to news flow that the Home Ownership Campaign (HOC) will likely be extended, Maybank IB Research noted that while this is positive for the property sector, it is somewhat premature to announce the news now.

“In our view, a better timing would be after the end of HOC 2020 on May 31 because with news now of the potential extension, HOC buyers could potentially delay their property purchases to a later date,” opined the research house. – April 12, 2021

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