WHILE property sales in CY2021 have been encouraging, Kenanga Research is less upbeat on prospects for CY2022 primarily due to absence of house ownership campaign (HOC) which provides cash savings of RM6,350 to RM28,500 (2.1%-2.9%) for properties worth RM300,000-RM1 mil.
Other obvious reasons include:
- Expected interest rate hike as the economy recovers (the research house assumes two 0.25% hikes towards end-2022);
- Property cooling measures implemented in Singapore in December 2021 (which would restrain sales for Sunway Bhd); and
- Growing overhangs and unsold units under construction within the residential market which would create a more competitive market which would result in an overall year-on-year (yoy) sales drop to RM17.75 bil for developers under its coverage.
“Should HOC be extended on the last day of 2021, we are mildly positive as this would provide upside towards our FY2022E sales numbers,” opined analyst Lum Joe Shen in a real estate sector update. “However, we view such tax holiday assistance as just a temporary measure while the ongoing structural issue of oversupply still persists.”
In fact, the HOC, which was supposed to bring down overhang units and alleviate the oversupply issue, have failed given the growing overhang units from overbuilding these past years, according to Kenanga Research.
Based on data from National Property Information Centre (NAPIC), the research house noted that the oversupply issue began in earnest in 2015 when serviced residences started to flood the market in masses despite cooling measures imposed starting 2014.
Overhang units (units that have been launched/completed for more than nine months but remain unsold) for serviced residences grew at a whopping compound annual growth rate (CAGR) rate of 77% between 2015 till 9M CY2021.
“We opine that this issue which is pressuring house prices is unlikely to abate in the near term given the large amount of overhang and unsold-under-construction units (units that have been launched for over nine months, uncompleted and remain unsold) are still in circulation today,” Kenanga Research pointed out.
“In fact, based on latest 9M CY2021 data tabulated, unsold units in circulation are near an all-time high at 171,000 units.”
A bulk of the overhangs and unsold under construction units from “residential” are from condominium/apartment units. Hence, the oversupply issue mainly revolves around high-rise developments.
All-in-all, Kenanga Research maintained its “neutral” outlook on the sector as it deemed the sector is still plagued with affordability, policy and oversupply issues. “We feel the sector still lacks sustainable earnings visibility and growth to justify a re-rating in valuations,” added the research house. – Dec 29, 2021
