MALAYSIA’S property sector is at best showing a fragile recovery with growing risks at both top and bottom line levels.
Towards this end, Maybank IB Research has highlighted “quadruple whammies” with the property sector slammed by:
- Slowing demand after the end of Home Ownership campaign (HOC) 2021;
- Labour and raw material shortages that resulted in slower work progress;
- Rising raw material costs (margin contraction); and
- Interest rate hikes (+25 basis points [bps] in May 2022) that hit the bottom line due to higher financing costs.
“Developers are generally less aggressive and expecting flat/lower sales targets (-56% to +2.8% year-on-year [yoy]) for 2022,” observed analyst Wong Wei Sum in a property sector outlook.
This aside, further interest rate hikes will not only hit buyers’ affordability but also highly-geared developers, prompting Maybank IB Research to raise the discounts on price-to-book value (PBV) and remain defensive in stock picking.
Reiterating its “neutral” outlook on the property sector, the research house’s two “buy” picks are Eco World Development Group Bhd (ECW) and Sime Darby Property Bhd given their strong exposures in both the landed residential and industrial property segments.
“To ensure the project delivery is on time, developers may delay some of their new launches to avoid potential liquidated ascertained damages (LAD) payment (ie. a sales risk) in view of labour shortages,” reckoned Maybank IB Research.
“Elsewhere, further interest rate hikes (MKE: another +50bps in 2022, +75bps in 2023) will not only hit buyers’ affordability but also highly-geared developers like SP Setia Bhd. Political uncertainties ahead of the 15th General Elections (GE15) which is required to be held by mid-2023 will also negatively affect the purchase of big-ticket items.”
Without the presence of HOC, Maybank IB Research noted that 1Q 2022 residential property sales declined -6% quarter-on-quarter (qoq) to RM23 bil (from RM24.6 bil in 4Q 2021; 1Q 2021:RM19.6 bil).
“Our discussions with developers revealed that most of the 1Q 2022 sales were converted from the bookings secured in December 2021 before the end of HOC 2021,” Wong pointed out.
“Elsewhere, unsold stocks have declined to 122,172 units (-5% qoq but +19% yoy) implying that the implementation of HOC 2021 was insufficient to help solve the persistent property overhang issue in the country.”
To make matters worse, Maybank IB Research expects the sales/margins-suppressing headwinds (labour and raw material shortages, political uncertainties and interest rate hikes) to likely linger into 2023. – July 4, 2022
