'Neutral' outlook on Malaysian property sector

Kenanga Research property analysts Sarah Lim and Adrian Ng are downgrading the sector to “neutral”, as they believe the risk-reward ratio is leaning towards “risk” due to expected minimal catalysts in the third quarter of 2014 and possible negative headwinds during the quarter.

PETALING JAYA: Kenanga Research has downgraded the property sector to “neutral” from “overweight”, while Maybank Investment Bank Research (Maybank IB) remains “neutral” on the back of a lack of new catalysts, increasing tightening measures and household debt, which is at an all-time high.

Kenanga Research property analysts Sarah Lim and Adrian Ng are downgrading the sector to “neutral”, as they believe the risk-reward ratio is leaning towards “risk” due to expected minimal catalysts in the third quarter of 2014 and possible negative headwinds during the quarter.

This includes potential interest rate hikes and further cooling measures in Budget 2015.

Meanwhile, Maybank IB Research analyst Wong Wei Sum highlighted that household debt had reached a high of 86.8% of nominal gross domestic product at end-2013, and could climb to 88% by end-December.

“There is a risk that Bank Negara may further rein in household debt expansion and curb speculative demand. With many potential buyers still looking to buy property for investment purposes, further tightening measures could negatively hit demand, and in greater force,” she said.

Lim and Ng opined that Johor’s Iskandar Malaysia story had lost steam, given the influx of China-based developers that have the capability to flood the market with high-rise residentials.

This was seen in the volume of units launched by Guangzhou-based Country Garden Holdings Co Ltd’s Danga Bay project, where it launched most of the 10,000 units of condominiums at one go.

“There are threats of more property and land supply due to Country Garden and Kumpulan Prasarana Rakyat Johor’s plans to reclaim about 5,000 acres along the Straits of Johor near the Second Link, even though Johor has ample landbank for development,” said Lim and Ng.

They added that unfavourable state policies, including changes in working days and weekends and recent amendments to the Johor Housing and Real Property Board Enactment Bill 2014, had caused more confusion among investors.

“We are glad that Singapore has expressed concerns about the land reclamation, and that Malaysia has agreed to provide Singapore with the relevant information for further studies,” said Lim and Ng.

They believe the reclamation would be devastating for Johor, especially for UEM Sunrise Bhd’s Nusajaya and Khazanah Nasional Bhd’s Medini area. “We really see no need for additional land, as Johor still has ample amount of landbank and capable local developers,” they said.

Meanwhile, in a survey conducted on 30 randomly selected visitors during a property fair, Maybank’s Wong said that 80% of the respondents intended to buy at least one property over the next 12 months.

“Most already have at least one property in hand and are looking for new properties for investment purposes. Many also admitted that rising living costs, with the goods and services tax implementation and interest rate hikes, would very likely affect their purchase decision,” she said.

She added that the top concerns continue to be pricing and financing. - The Star