Freeze on KL high-end property projects has little effect on stocks

Posted on: 2017-11-23

PETALING JAYA: An indefinite freeze on approvals for the development of high-end residential and commercial property above RM1mil in Kuala Lumpur is expected to have a negligible impact on most property stocks on Bursa Malaysia.

This is in part due to the fact that most of the listed property developers in the country do not have significant exposure in the capital city, and in part due to the fact that most of their residential projects are priced below the RM1mil threshold, with limited involvement in commercial properties, some analysts said.

On the equity market, property stocks also showed little indication of being affected by news over the weekend that Dewan Bandaraya Kuala Lumpur (DBKL) has frozen approvals for the development of shopping malls, offices and luxury condominiums priced above RM1mil effective Nov 1 to mitigate the ongoing supply glut in the city.

CIMB Research noted that this was not the first time that a property freeze had been imposed to mitigate the supply glut in the local market. Previously, the Selangor government had a six-month freeze on approvals for new property projects involving serviced apartments, small-office-home-offices and small-office-versatile-offices submitted after Jan 1, 2016.

“We are positive on this move as it would help address the oversupply situation in the overall property market,” CIMB Research said in its report.

If the jurisdiction was only Kuala Lumpur, then the brokerage would expect the measure to mostly impact the high-end property developers, such as Selangor Properties Bhd

However, it is of the view that the measure would have a minimal impact on its top picks, such as LBS Bina Group Bhd.
 and Mah Sing Group Bhd, as most of their products are less than RM600,000 per unit and both have limited exposure in the office and retail space.

“However, if the moratorium is applicable nationwide, then developers across the board could be affected,” CIMB Research explained.

Similarly, UOB Kay Hian Research also viewed the new measure by DBKL as having a neutral impact on most property stocks, as many developers had in recent years avoided developments in the country’s capital.

“We are neutral on the announcement as most developers under our coverage do not have major exposure in developments in Kuala Lumpur. Over the past couple of years, developers have not aggressively entered the KL City market, but have put their resources to focus on developments within the Klang Valley instead, which include the state of Selangor, where land prices and developments are still relatively affordable,” UOB Kay Hian Research wrote in its report.

Both CIMB Research and UOB Kay Hian Research have a neutral outlook on Malaysia’s property market.

In justifying its “neutral” stance, CIMB Research pointed to the bleak outlook and concerns about the oversupply situation as well as more stringent regulations.

“We still prefer the developers that are focused on township projects and products priced below RM1mil as we think these are the healthiest sub-segments in the overall property market. In our coverage, these developers include LBS Bina and Mah Sing,” the brokerage said.

UOB Kay Hian Research said it has maintained its “market weight” call on the property sector due to the lacklustre outlook.

“As expected, property stocks are currently trading below their long-term price-earnings mean amid the slowdown in the sector. We believe 2018 would continue to be a challenging year, given affordability constraints and stringent lending. Nevertheless, developers with land banks at selected hotspots should continue to deliver decent sales, therefore enhancing their earnings visibility,” it said.

Meanwhile, AllianceDBS Research viewed the tightening measure by DBKL as having little effect to resolve the grave issue of a supply glut in the near term.

Seeing no respite in the near term, the brokerage said it expected the existing supply glut to go through a long gestation period until 2019.

“Taking the cue from listed developers’ relatively flattish sales targets in 2017, we expect the trend to persist in 2018 as the impending general election, which is widely expected to take place in the first half of 2018, will lead to potential buyers adopting a wait-and-see attitude for their property purchase decisions,” AllianceDBS Research said.

“Also, developers’ new launches will face stiff competition from newly-completed projects and public housing,” it added.

AllianceDBS Research noted that the Malaysian property market has been on a downtrend over the past three years, driven by the persistently weak sentiment, low affordability and accelerating incoming supply. It added that the challenges were not just confined to Kuala Lumpur.

“The huge incoming supply, which is increasingly being converted into unsold inventories, will continue to pressure the property market. For residential properties (including serviced apartments), we believe Johor and Penang will be more vulnerable, given the incoming supply that is higher-than-national-average relative to the respective state’s existing stock.

“Meanwhile, the commercial markets in the Klang Valley and Johor will be particularly more exposed to the high incoming supply,” it said.

Bank Negara in its quarterly bulletin last Friday said supply-demand imbalances in Malaysia’s property market had increased since 2015 – with unsold residential properties already at its highest in 10 years.

In the first quarter of 2017, total unsold residential properties stood at 130,690 units, the highest in a decade. This was close to double the historical average of 72,239 units per year between 2004 and 2016.

The central bank revealed that 83% of the total unsold units were priced above RM250,000. Of the total unsold units, 61% were high-rise properties, out of which 89% were priced above RM250,000.

Johor had the largest share of unsold residential units (27% of total unsold properties in Malaysia), followed by Selangor (21%), Kuala Lumpur (14%) and Penang (8%)


Source From: The Star

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