AmInvestment maintains ‘neutral’ call on property sector

Construction workers walking across a platform at a building site in Kuala Lumpur February 14, 2021. — Picture by Shafwan Zaidon
Construction workers walking across a platform at a building site in Kuala Lumpur February 14, 2021. — Picture by Shafwan Zaidon

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KUALA LUMPUR, July 15 — AmInvestment Bank Bhd has maintained its “neutral” stance on Malaysia’s property sector for the second half of 2021 (2H21), with a cautious outlook due to the various movement and economic restrictions which can cause a slower-than-expected recovery in the sector.

In a research note today, the bank said the local property sector has been languishing over the last five to six years, after hitting an upswing in mid-2013 when the House Price Index saw double-digit growth.

“We believe the most encouraging signs this year include developers’ sales growth rate of five to 10 per cent year-on-year (y-o-y) in the first quarter of financial year 2021 (Q1FY21) via online booking platforms, and their willingness to sacrifice margin by focusing on affordable residential segments in line with market demand.

“Another sign is the land banking activities in prime areas with good public infrastructure and connectivity to Kuala Lumpur (KL) city centre,” it said.

The bank said it is less optimistic of sales in the second half of the year (2H21) as sales momentum could slow down from mid-May with the imposition of the Movement Control Order (MCO) 3.0, followed by a lockdown in June.

“Last year, when the first MCO lasted 1.5 months (from March 18 to May 3, 2020), housing sales fell 11 per cent quarter-on-quarter (q-o-q) in Q2FY20 and thereafter rebounded by 121 per cent q-o-q in Q3FY20.

“However, we do not expect the same pace of recovery in 2H21 as economic activities are only allowed to resume in phase three which is targeted to be in September under the National Recovery Plan, hence, we do not anticipate positive earnings surprises over the next six to 12 months,” it said.

AmInvestment Bank also noted that the average loan-to-value (LTV) ratio of outstanding housing loans offered by banks remained below 60 per cent versus 59 per cent and 57 per cent in 2018 and 2019, respectively.

“Banks remain prudent in residential property lending to mitigate the risk of more borrowers falling into negative equity and limit the increase in loan loss provisions,” it said.

Even though loans applied for residential properties reached an all-time high in April 2021, banks’ average approval rate slid to 34.2 per cent from 37.4 per cent a year ago.

“We believe this is likely due to house buyers’ inability to qualify for a home mortgage, given the high debt service ratios for newly-approved loans at 43 per cent.

“Meanwhile, the household debt-to Gross Domestic Product (GDP) ratio has risen to 93.3 per cent as of December 2020 from 82.9 per cent in December 2019,” it said.

The research house also saw a tapering inventory overhang, as many developers have moved from higher-end products to affordable ones over the past three to four years.

“We are mindful that affordable housing typically commands low margins which could be crimped further by intensifying competition as this segment gets more crowded by the day.

“Gradually, national residential overhang has tapered down by eight per cent y-o-y to 27,468 unsold units in Q1FY21, translating to RM18.5 billion versus RM18.9 billion in Q1FY20,” it said.

AmInvestment Bank said its top pick for the sector is Sunway (fair value: RM2.20), given its consistent sales performance despite the soft property market, underpinned by attractive products in good locations and a strong brand recognition arising from highly successful landmark developments.

“We also like its expanding healthcare business, coupled with its good earnings visibility, supported by substantive unbilled sales and outstanding order book,” it said.

Moving forward, the research house said it may upgrade its call on the sector to “overweight” if banks ease lending policies on property purchases, a better-than-expected economic recovery which significantly improves consumer sentiment, and if the government introduces additional incentives to encourage residential purchases.

Conversely, it could downgrade its call to “underweight” if banks tighten their lending policies or if consumer sentiment deteriorates further due to an economic downturn or recurrence of new viral pandemics, it added. — Bernama

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