Mix of challenges and opportunities for property sector in second half 2020

Maybank Investment Bank Research maintains its neutral view on the property sector as it sees a mix of challenges and opportunities in the second half of 2020, and is of the view that the industry remains highly newsflow driven.

“While the sector should perform better in second half of 2020 as works normalise and sales bounce back on the back of low interest rate environment and policy easing measures announced during the Economic Recovery Plan on June 5, the fragile recovery could be hit by rising auction properties after the six-month loan moratorium in end September,” it said.

Explaining further, it said the lifting of moratorium could lead more businesses to wind up and properties being auctioned, resulting in higher non-performing loans (NPLs). This could prompt banks to be more selective and careful in approving loans, which in turn may affect the demand for properties.

Currently, the average conversion rate (from bookings/pre-sales into SPA) is about 40%-50%, depending on the property type.

Maybank Investment Bank Research recalled most developers under its coverage reported losses for the second quarter due to disruptions caused by the movement control order from March to June, as well as impairments or write-offs.

“During this period, some developers such as SPSB, UEM Sunrise (UEMS) and Sime Darby Property (SDPR) took the opportunity to make necessary price adjustments on unsold inventory which caused impairments or write-offs,” it said.

On an optimistic note, Maybank Investment Bank Research highlighted further policy easing in the upcoming Budget 2021 such as new Developer Interest Bearing Scheme [DIBS], may provide some trading opportunities, however it could be short-lived.

It placed buy call on Sunway Berhad (SWB), SPSB and Tambun Indah Land Berhad (TILB).

“We like SWB for its diversified earnings base while SPSB’s 2021-2022 earnings growth would be strong with the completion of its overseas projects. As for TILB, it has a strong balance sheet to weather a prolonged slowdown in the sector.” – Sept 10, 2020

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