KUALA LUMPUR: PublicInvest Research maintains that the property market will remain challenging in 2017 due to the difficult trading environment currently, driven by weak sentiment, low affordability, stricter bank lending and rising incoming supply.
“The sector is also faced with high property prices (and high household debt) and oversupply in certain segments-such as high-end condominiums especially in Iskandar.
“All told, we maintain our ‘neutral’ call on the sector,” PublicInvest said.
It believed property prices would still hold up well however, supported by ample liquidity, high input costs (due to compliance/land costs), the low interest rate environment and strong secular positives (young demographics and improved connectivity from MRT/LRT/HSR spending).
PublicInvest said flat demand growth was expected as property sales have continued to soften, with the impact of cooling measures and oversupply concerns in certain markets (mainly Iskandar Johor) weighing.
“Property developers have mostly set flat sales targets for 2017, which signals that property sales are expected to stay moderate at best.
“Also, we see heightened competition especially in the affordable housing segment with the raised household income eligibility to RM15,000 per month and reduced moratorium of five years by the government,” it said, adding that this could could further squeeze margins in the crowded affordable housing market.
PublicInvest noted that property prices were still stubbornly hovering at elevated levels.
Cooling measures in Malaysia appear to have successfully slowed down the property price increase somewhat. The house price index, as a whole, contracted marginally by 0.7% in December 2016.
It believed that growth from credit expansion was unlikely in the near term. It added that consumer sentiments remained weak while household debt levels were still high (albeit easing marginally from 89% of GDP in 2015 to 86.7% in 1Q17).
“Our sector picks are selected property stocks such as SP Setia, UEM Sunrise and LBS Bina which have healthy unbilled sales, exposure in growth areas and well-located landbank (especially for SP Setia, which is expected to grow even bigger with the proposed merger with I&P).
“As for UEM Sunrise, the trading environment in Johor is still tough but we believe the group will be able to regain its sales momentum, given its well-located landbank in Klang Valley and Iskandar, Johor. LBS is preferred for its strong exposure to the mid-market segment,” PublicInvest said.