Property downgrade

UOB Kay Hian has downgraded the local property sector due to slower residential home sales, especially in the second half of the year, coupled with an anticipated tightening of property measures.

The research house, which downgraded the sector from “overweight” to “market weight”, said in its latest note that sales launches by property developer might had slightly dampened with average take-up rates of 50% to 65% compared with 80% to 90% a year ago.

It said there could be cooling measures on the sector, namely the re-introduction of a real property gains tax (RPGT), loan-to-value cap at 70% for second mortgage and mortgage approval criteria based on net salary.

Although these measures might not have been put in place, it added that the impact had already been felt as most of the property stocks had fallen about 10% to 25% since last month and were now trading sideways.

UOB Kay Hian noted that most companies were trading at a 10% to 20% discount to their respective revised net asset value (RNAV). Selectively, the research house said it liked property developers that could still benefit from the rollout of the Economic Transformation Programme (ETP) and positive news flow from Iskandar Malaysia.

It is maintaining its “buy” calls on MRCB (target price: RM3.02) and UEM Land (target price: RM2.68). The near-term catalysts for MRCB is the contract awards for phase 1 of River of Life and clinching parcels of RRI Land in Sg Buloh by year-end.

UEM Land, as the flagship developer of Khazanah, will continue to benefit from the land price appreciation through the materialisation of Iskandar Malaysia, which is currently very much on track, according to UOB Kay Hian.

It recently downgraded Mah Sing to “hold” with a target price of RM2.51 (10% discount to RNAV) and also maintained a “hold” on SP Setia with a target price of RM4 (10% discount to RNAV).

The research outfit is currently reviewing the target price and notes that there could be further downside if the market continues to fall, given its relative premium valuation compared with its peers.

Nevertheless, UOB Kay Hian said it expected mainstream property developers' valuations to hover at between mean and one standard deviation (SD) above mean.

This healthy valuation range reflects the positives of a low mortgage rate environment (of 4%-5%), the ability to secure coveted federal landbank, potential merger and acquisition activities within the sector (for example, IJM Land and MRCB), and in the intermediate term, the positive spill-over to land prices from mega projects like the MRT lines and River of Life.

Most of the property companies in UOB Kay Hian's coverage had also experienced positive changes in their business models, which justified higher above-historical valuations, it added.

Meanwhile, a property analyst at MIDF Research said it would maintain a “neutral” call on the sector this year unless there were policy changes that would impact demand for properties, like the reintroduction of the RPGT, loan-to-value cap of 70% for second homes and approval of mortgage loans based on net salaries.

He said the current low interest rate environment with the overnight policy rate maintained at 3% was still attractive and would spur demand for properties barring any unforeseen circumstances. - By Daljit Dhesi (The Star)


September 14, 2011 at 1:12 PMteo

I think it is still not the buyer market. It is also neither the seller/speculator market. It is a standoff.

But, the seller/speculator are bearing the pain of paying interest in cannot sell cannot rent deadlock.

The latest price of Southbay is 1M, yet no buyer in sight.

Not to mention Summer Place, Platino, Breeza, Birch, Surin...etc.

September 14, 2011 at 2:18 PMCheah

dont know is there any transaction happen for One Residence Sathu or Dua Villas?

September 14, 2011 at 3:31 PMHelloHello

Oversupply and dropping demands.! We will see how it comes out!

Buyers, get ready but hold on to your Cash!

September 14, 2011 at 4:52 PMRoman

yeah, i fully agreed. The advantage of potential buyer is they can wait but owner/investor/speculator needs to bear the pain of paying loan interest. Personally, i don't think there is much sub-sale transaction for RM 800k or above DST and RM600k or above condo. It is still far below than affordability of the major group in Penangites. Recent transactions from state government showed that DST at greenlane and island glades area only transacted at around RM570k.

September 14, 2011 at 4:56 PMRoman

The asking price for urban residence is dropping from RM680k to RM620k recently. I believe prices for those RM650k or above condo will continue to drop to a reasonable range at end of this year or early next year. Let's wait and see.

September 14, 2011 at 7:26 PMAnonymous

In August we had all the optimistic facts, slightly more in a month later in september, it is in this shape already ??
What is next after the Oct budget ??

It is high time that to see market adjustment until the poor will be able to buy their own shelters.

'Property bubble burst unlikely in Malaysia' Published: 2011/08/02

'Property bubble building up but not alarming' Published: 2011/08/03

'Sales beyond expectations' Published:July 22, 2011

September 14, 2011 at 10:54 PMcondomana

Dear Observer,

As much as I think it is pointless (almost to the extent of stupidity) to pay such high price for properties right now, I would like to also point out that the "high price" problem does not affect the poor that much as there are plenty of extremely cheap low cost flats available in the market (as properties in this segment have not seen much appreciation in recent years).

I therefore disagree with the statement "It is high time that to see market adjustment until the poor will be able to buy their own shelters".

September 14, 2011 at 11:11 PMAnonymous

Dear Condomana

Your disagreement is valid, anywhere the market adjustment will be good for the salary-earners (majority of the population) as the prices now are really crazy and are far from the reach of the working group.

September 15, 2011 at 6:15 AMmax

I noticed the asking price for Zan Pavillon is 500K+ now (from 600K+ previously)

September 15, 2011 at 3:17 PMkoktiong

I dont think properties in Penang will drop. If Penang properties drop, who will benifit ? Foreigners from China, Singapore, Thailand, Phillippine, Indonesia, Taiwan, Hong Kong, etc. All these rich people are looking at Penang properties. If you have travelled to those big cities, compare the price with Penang. Penang properties are among the cheapest, further, things here are cheaper as well.

September 15, 2011 at 4:56 PMyh

haha... wat koktiong said straightly remind me of oour lovely government which always compare our oil price with singapore, australia, uk, usa.... always compare with those expansive wan =.=

September 15, 2011 at 4:57 PMcondomana

Dear koktiong,

You are right. Foreign money is bad for the locals because it makes properties "expensive" to locals, and I simply couldn't find a good reason why we should let foreigners buy freely at the expense of the locals. Perhaps you can help me with this.

Properties in Alor Setar are much cheaper than Penang, but no foreigners are buying there, simply because they will only go where they find a good story (eg. an island full of suckers who are always willing to sink their money into empty houses)..:D

State land office is there for a reason. There is a reason when we put land matters under state jurisdiction. If it does nothing when there is a need and before it's too late, who else can we blame later when things get out of hand?

koktiong, don't get me wrong (in case you think I am jealous of not being able to afford a nice house..;)), I am all for a prosperous Penang. Property price should increase with increasing income, but not by way of speculation or foreign buying, which normally results in disruptive volatility to the economy and the people's way of life.

September 15, 2011 at 7:50 PMAnonymous

Dear Koktiong
You seem to prefer the property price keeps going up. Are you trying to imply that the foreigners will benefit if the price going down and the local will benefit if the price keep going up ??

There are many ways one can make money without causing hardship to others. Most of the Malaysian will suffers if the price keep going up, only the few speculators/businessman will benefit. Teo & Roman in the above already highlighted that the sellers/speculators are now bearing the pain of interest charges but could not rent or sell. This is just a small pain compared to majority of the population who has to face the sky rocketed price and paying for more interest charge all this while due to crazy price.

Try to think on the side of the majority of those who suffer as a result of this speculation. Hopefully BNM will implement some measure eg loan approval based on net income to normalise the market.

Election is coming, the government is indirectly compelled to implement some measures for sure to protect the majority rather than the few who prefer the price to keep going unrealistically

September 16, 2011 at 5:23

When you have property, you want the price to go up. When you are looking for one, you wish the price goes down. The endless greed of human being.

September 16, 2011 at 10:27 PMHF

Penang properties are definitely overpriced. Looking at the fundamentals, the return is pitifully low. For property over $1M, the rental is about $2000 per month or even less. The rental market is very weak. I wonder how many potential tenants are out there for houses asking for $7000-8000 per month. They are probably very few. When your return hovers around 2%, you might as well put the money in the bank collecting 3% and risk free. The developers keep telling us that the property price in Penang is the cheapest in the region. They even compared Penang to Singapore and Hong Kong. Such a joke! The conditions in these two cities are simply different and Penang do not have them - for e.g a world class infrastructure and favourable business environment/efficient government etc which Penang are way outmatched. I can see oversupply from overbuilding looming at the door.Coupled with government's administrative curbs, I expect the property prices in Penang to come down, it is simply not sustainable.