PROPERTY sales is likely to remain sluggish in 2021 amid gloomy economic outlook compounded by escalating property overhang.
Such is the UOB Kay Hian Research outlook of the real estate sector given many developers are putting a brake on new launches for 2021 as their aim is to clear existing inventories which have been rising – and may even force them to make impairments to match demand.
“Weaker financial position poses a great concern,” opined analyst Abdul Hadi Manaf in a property sector update. “As property sales soften, we think that it is crucial to closely monitor financial muscle for most developers.”
Based on the research house’s observation, average gearing ratio of listed developers has risen from 0.55 times in May to 0.75 times in December with some developers such as SP Setia Bhd and UEM Sunrise Bhd having reported weakening Z-scores which indicate a higher risk of going concern.
“We share the Real Estate & Housing Developers’ Association’s (Rehda) view that property sales will be sluggish despite the re-introduction of the Home Ownership Campaign (HOC),” noted Abdul Hadi.
“This is largely due to subdued global economic growth which may put a dent on overall unemployment rates. “
Moreover, UOB Kay Hian Research also expects the COVID-19 pandemic to continue to cloud economic recovery moving into 2021.
“As large ticket items (eg. property) are highly correlated with gross domestic product (GDP) growth, we opine that Bank Negara Malaysia’s 2021 GDP forecast of 6.5-7.5% is not sufficient to create the feel-good factor, coming from a contraction of 4.5%,” observed the research house.
In addition, full stamp duty exemption on the memorandum of transfer and loan agreement for homes priced below RM500,000 as announced in Budget 2021 for a five-year period (January 2021 to December 2025) will only provide more room for property buyers to delay their purchase within the five-year horizon.
All-in, UOB Kay Hian Research maintained its “market weight” on developers.
“We think the sector will continue to see depressed valuations moving into 1H 2021 in the absence of clear catalysts in the near term,” projected the research house.
“We advocate investors to stay on the sidelines and for exposure, we prefer developers with diversified earnings (eg. Sunway Bhd) and high yielders (eg. Matrix Concepts Holdings Bhd).” – Dec 16, 2020
