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Saturday, 28 July 2018

(The Star) Property sector cautious amid ‘bubble’ talk, new housing policy

THE property market, which has been facing strong headwinds in the past couple of years, continues to be on high alert amid continued discussions of a possible “bubble” and the Government responding in kind to introduce a new national housing policy.

The continued talk on the supposed bubble has kept investors, both in the property market and in the stock market, at bay causing valuations in the latter to be depressed.

It was reported in the week that the national housing policy 2.0 will be announced in September to reduce house prices by lowering compliance costs.

The compliance costs include various charges developers pay local authorities and encompass land conversion fees and contributions for utilities like electricity, water and sewerage.

Sime Darby Property Bhd says compliance costs can consist up to 25% of its development costs at the moment.

A drop in these charges could also bring about lower property prices in general but the exact quantum is not known yet, observers say.

Analysts are not having much expectations at the moment and are mostly neutral, as the discussions on the apparent high prices continue and as to whether this supposed bubble would burst eventually.

As of now, it is quite apparent that many, if not all, investors are very cautious on the outlook of the sector, too cautious in fact for any euphoric conditions to be present at all in the property market as focus continues to be on affordable housing.

An analyst from a local research house tells StarBizWeek that there is no bubble given that there are no prevalent symptoms of it.

“There is no looming property bubble in Malaysia, given that the market has not seen any panic selling and oversupply issues are also prevalent only in certain sub-locations,” she says.

Other observers say that once the issues plaguing the hike in prices that was felt with the advent of the goods and services tax some years back then were taken away now the pressure felt on the supply chain including the property supply chain could be normalised again.

“Upward pressure on inflation could be neutralised and perhaps people will feel more buying power again and the property sector could be one of the beneficiaries,” the observer says.

Moreover, buyers could be coming back at present prices as just earlier in the week, property consultancy firm Knight Frank Malaysia said that there was a gentle recovery in the domestic property market in the first half of the year.

The consultancy says active participation of key industrial and logistics players, both local and foreign, bode well for the local industrial property market.

It also adds that the residential segment’s sentiment had improved in the first half with the capital city Kuala Lumpur being one of the most well liked destinations for property buyers and investors.

The Bursa Malaysia Property Index which indexes property counters on the local bourse has also recovered since mid-July to date and has gained by about 5.3%.

The current level of the Bursa Malaysia Property Index is around the same level that it was last at just prior to the 14th general election (GE14) that was held more than two months ago.

Property counters had taken a beating since the GE14 but appears to be on the road to recovery now pending further clarity from the new Pakatan Harapan government. The analyst from the local research house says that she maintains her neutral stance on the sector for the moment until clarity is seen.

“We are neutral pending further clarity on the housing policies to be implemented and decisions regarding the rollout of mega infrastructure projects in which some of the property stocks under our coverage have landbank surrounding the proposed projects,” she says.

“While there are signs showing that the industry has bottomed out, it still lacks fresh catalysts for a convincing sector re-rating,” she adds.

Amid talk of the formulation of a new national housing policy, there were also reports earlier last month that the transport ministry would like to develop affordable housing projects on Railway Assets Corp’s 9,192 acres of land, which are largely located in the urban areas.

This had led Maybank Investment Bank (IB) Research to comment that the outcome of the planned exercise by the trasnport ministry is still unknown.

It further notes that coordinated planning (in the timing and quantum of land supply) and control is paramount to avoid an over-supply in this housing segment.

Maybank IB notes that the broad property sector outlook continues to remain challenging and has advised investors to be defensive in stock-picking, with an unchanged neutral rating on the industry.

Amid all these changes in policies, it is no surprise that property companies continue to be guarded as reflected in their share prices, many of which are still trading below their historical price to book ratios.