THE much anticipated recovery for the property sector in 2H CY2020 stemming from incentives in the Short Term Economic Recovery Plan (Penjana) and record low interest rate will not materialise in view of a spike in Malaysia’s COVID-19 infection rate.
Such situation has derailed property sales recovery in tandem with uncertainties in the country’s economic outlook following the imposition of the conditional movement control order (CMCO), according to MIDF Research.
“We expect visitation to the sales gallery to be low during the CMCO period while buyer sentiment may turn weaker due to uncertain economic outlook,” wrote Jessica Low Jze Teing in a property sector update.
“That could result in property sales turning weaker in 4Q CY20 and may prompt property developers to revise downwards their sales target.”
Low noted that while most developers recorded improved bookings figures post MCO due to pent up demand and low interest rate, the conversion of bookings into sales has pose a challenge given more stringent bank requirement.
Loan statistic released by Bank Negara Malaysia has shown that the percentage of total approved loan over total applied loan for property purchase in September and August stood at 34.8% and 36.1% respectively which were below the average approval rate of 42% in 2019.
“The discouraging conversion of bookings into sales is expected to weigh on new sales figures of property companies in 2H CY20,” lamented Low.
“We think property developers may turn less aggressive in their launches plan going forward due to the ongoing COVID-19 pandemic.”
This prompted MIDF Research to assume that earnings visibility of property developers could be weaker in the near-term due to potentially lower new sales to be recognised progressively.
As per the National Property Information Centre (NAPIC) statistics, Low reckoned that the increase in property inventory in 2Q CY2020 suggests that the oversupply issue in residential property market may resurface again.
Johor has the highest number of residential overhangs with 6,166 units, followed by Selangor (4,865 units) and Perak (4,644 units).
“We think that rising property inventory would make property developers to be more aggressive in offering incentives for property buyers which may eventually eat into their profit margin,” Low pointed out.
All-in, MIDF Research downgraded the property sector to “neutral” from “positive” as the research house expects the re-imposition of the CMCO and resurgence of COVID-19 cases in Malaysia to derail the recovery of property sector.
“Property sales outlook is expected to turn weaker as buyers’ sentiment will be affected by the uncertain economic outlook,” justified Low. “Besides, the renewed concern over property oversupply would also weigh on buying sentiment.”
Despite its muted outlook for property sector, MIDF Research still likes Mah Sing Group Bhd (“buy”; target price: RM1.07) as it expects the developer’s recent venture into gloves manufacturing will boost earnings significantly in FY2021.
“Besides, Mah Sing could be the potential beneficiary of stamp duty waiver for first time home buyers during the 2021-2015 period due to its strategy of launching affordable housing,” added the research house. – Nov 13, 2020
