TOUGH times abound for the country’s property sector.
Kenanga Research has maintained a “neutral” call on the sector on the rationale that the numerous movement control orders (MCOs) which have further pushed back the sector’s recovery trajectory, and also the fact that the country’s House Price Index (HPI) growth is severely lagging behind other nations’.
In fact, Kenanga Research has suggested that the country’s HPI growth is one of the worst. Based on Knight Frank’s Global House Price Index (HPI), out of the 56 countries being surveyed, Malaysia ranks the fourth worst at when it comes to house price growth in 1Q CY2021.
The top three performers on the research house’s index are Turkey (with a 32% 12-month growth), New Zealand (22.1%) and Luxembourg (16.6%), while trailing behind Malaysia (-0.9%) are Morocco (-1.2%), India (-1.6%) and Spain (-1.8%).
The dismal ranking is believed to have been attributed to two key reasons: Malaysia’s relatively slower COVID-19 recovery pace, and the oversupply issue.
Besides the ample liquidity coupled with the low interest rate shared globally, the countries that showed strong HPI growth had a shift in buyer preference for bigger homes to suburban areas post-pandemic, and a tight property supply situation prior.
“In our view, these idiosyncratic scenarios cannot be applied in a Malaysian context. Hence, even if the COVID-19 situation does improve, we do not foresee a blanket re-rating for property prices,” Kenanga Research rationalises.
“We will continue to face an oversupply problem that emerged six years ago. Based on NAPIC’s data, we believe the oversupply issue started in 2015 when serviced residences started to flood the market in masses despite cooling measures being imposed by the Government starting 2014.”
Overhang units for serviced residences grew at a whopping compound annual growth rate (CAGR) of 192% since 2015 until 1Q CY2021, and Kenanga Research opines that the issue is unlikely to abate in the near term given the large amount of overhang and unsold-under-construction units still in circulation today.
Meanwhile, in a buyers’ market where margins will inevitably be squeezed, Kenanga Research reveals its preference for developers that can quickly adapt to the changing landscape to maintain sales and earnings.
“In our experiment to purchase a property virtually, we found that Eco World Development Group Bhd (ECOWLD) stands out in terms of online integration against other developers making them our preferred pick for the sector,” it writes.
Overall, the research house opines that the property sector still remains fundamentally challenged.
“However, we do see opportunities given the sectors’ value proposition from a price-to-book value (PBV) perspective. Hence, we expect rotational plays into the sector every once in a while,” it concludes. – July 5, 2021
