“Property sector plagued by affordability, policy and oversupply issues”

ALTHOUGH Johor remains the state with highest unsold property units at 43,000 as of 1H 2021, the Klang Valley is also emerging as a hotspot for unsold units.

According to Kenanga Research, unsold property units in Kuala Lumpur have tripled while those in Selangor have more than doubled since 2015.

“While some other states (Perak, Penang, Negeri Sembilan and Sabah) have also shown significant growth in unsold units, note that KL and Selangor come from a much higher base,” observed analyst Lum Joe Shen in a property sector update.

“Also being the two states with the highest average home prices at RM745,000 and RM482,000 per unit (vs Malaysia’s average of RM427,000/unit), this is possibly the main reason why the house price index (HPI) in KL and Selangor have stagnated.

In fact, KL was the only area which saw its HPI deteriorating since 2016.”

Breakdown of yearly unsold units in circulation by state

Meanwhile, Kenanga Research noted that unsold units in circulation in Johor have pretty much plateaued at around its current 43,000 range since 2017 as developers have been prudent with launches amid the huge influx of units in the prior years led by Chinese developers.

Filtering the trend of growing unsold KL and Selangor units into its coverage of developers, Kenanga Research opined that UEM Sunrise Bhd, Mah Sing Group Bhd, UOA Development Bhd, Malaysian Resources Corp Bhd and Sunway Bhd which have high exposure to high-rise developments in KL and Selangor would find it increasingly more challenging to drive sales amid mounting competition from unsold units and new launches.

“We believe in order to drive sales, development margins will have to be sacrificed either through higher discounts or through better product offerings (ie more facilities, freebies or higher degree of furnishing),” suggested the research house.

“2Q 2021 marks the first time HPI has dipped into a negative territory (-1.2%) on an annual basis. While this could be partially attributed to the pandemic, we think the underlying HPI trend has been heading towards negative growth all along and the pandemic just accelerated it. We believe such trend is mainly due to oversupply and affordability issues.”

YoY HPI growth

All-in-all, Kenanga Research maintained its “neutral” outlook on the property sector given the sector remains fundamentally challenged from an affordability, policy and oversupply standpoint.

“Despite the low valuations (in price-to-book value terms), the entire sector still lacks sustainable earnings visibility and growth to justify a re-rating,” added the research house. – Oct 4, 2021

 

Pic credit: Reuters

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