Property sector downgraded to "neutral" rating on Budget 2013 risks

Kenanga Research has downgraded the property development sector to a “neutral” rating from “overweight” previously, due to potential worse-than-expected Budget 2013 risks.

It noted that recent news reports had indicated that Budget 2013 would see measures to control the soaring prices of property, including tighter fiscal policies to curb speculation.

The research unit said it feared there would be hikes in buyers' stamp duties as this would have an immediate impact on the physical market.

“However, across the board hikes in buyers' stamp duty is unlikely as this will also hurt the first-time home owners' market, unless the stamp duty hikes are tiered by pricings and first home-ownership status.”

It also did not expect any banking sector tightening measures.

In a report, Kenanga Research said it thought real property gains tax (RPGT) hikes were likelier.

“But RPGT hikes will have less physical impact on developers as the heftiest hike tends to be during the first two to three years holding period, which fell under the construction period.”

The research unit said if these restrictive measures were implemented, the Government might look to “neutralise” their negative impact on developers with an automatic release mechanism for bumiputra units and reviewing the low-cost housing requirement and framework. It also anticipated a near-term knee-jerk reaction on the share prices of public listed property developers, should restrictive measures on the sector be implemented.

“Even then, we still expect the physical market to continue in its current momentum given a liquid banking sector and attractive rates,” said the research unit.

Property developers' earnings are also expected to continue to fare well in the next 12 months mainly due to favourable banking sector dynamics such as low financing rates and DIBS (developer interest bearing scheme) driving sales of new property launches.

“Hence, property developers will continue to chalk up decent sales as we believe the banking system favours new launches for system loans growth' dynamics.”

Kenanga Research also said most property developers were meeting their sales target, except for UEM Land Holdings Bhd.

It said another reason for its sector downgrade was due to UEM Land being downgraded to a “market perform rating”, from “outperfrom” previously.

“Although we are bullish on the Johor property market and its 2012 tipping point events, UEM Land is trailing behind its 2012 sales target and may not be able to achieve it this year,” it said. - By Thomas Huong (The Star)