Costlier real estate in 2H

The current dynamics of the Malaysian real estate sector are likely to push property prices up in 2H2008 as players grapple with costlier building materials, and falling real estate demand amid soaring inflation.

TA Securities Holdings Bhd senior analyst Kamarulzaman Hassan said newly-launched properties were expected to be costlier due to higher prices of materials like cement and steel, while lower demand could result in developers cutting supply.

“If you have cash, you should buy a house now as properties are still at old prices. To maintain prices, developers may cut the built-up area, or land size,” Kamarulzaman told The Edge Financial Daily.

Property demand, however, varies according to market segments. The analyst expects demand to be sluggish for mass market real estate priced up to RM250,000, but high-end units are deemed more resilient, helped by local and foreign demand.

In TA Securities’ market strategy note for the second half of this year, the research firm indicated that the local property sector would face “one of the toughest challenges in the century” with worries on both demand cost factors.

Costlier steel and cement, for example, can crimp profit margins by up to 6%, based on current prices of steel bars of about RM4,100 a tonne, and cement which is sold for RM13 per 50 kg, according to the research firm.

“The fat margin of more than 30% is now seriously in jeopardy. To dampen the situation further, potential delay in projects is highly possible given that at the current situation, the major contractors are not willing to tender given the uncertainty over building material prices,” said TA Securities which kept its neutral call on the property.

At the same time, consumers are expected to defer purchases of big-ticket items like properties as they have to contend with the higher cost of living. Adding to consumer woes is a possible interest rate hike.

Uncertainties in the nation’s political scene do not help either. Research firm CLSA said property launches in non-Barisan Nasional held states like Penang risked being delayed as “the new government has yet to ease into their new roles”.

Moreover, the current political landscape is deemed less conducive for foreign home buyers. “In the high-end condo developments, foreign demand has waned due to the uncertain political environment.

“Yields in the KLCC developments have been less than impressive, at only 5%, resulting in lower buying appetite from high net worth local buyers,” CLSA said in a note dated July 7.

In line with its underweight call for the property sector, the research firm has slashed its target prices for shares of several firms. The fair value for SP Setia Bhd was reduced from RM3 to RM2.60 with a sell recommendation.

Bandar Raya Developments Bhd’s target price was cut from RM2.35 to RM2.28, while Malaysian Resources Corp Bhd fair value was trimmed from RM1.80 to RM1.70. Both companies were rated a buy. - by Chong Jin Hun (The Edge Daily)

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