PETALING JAYA: There are still no sign of recovery in the local residential property market as most developers under the coverage reported lower new sales year-on-year, according to AmInvestment Bank.
It said the outlook for the Malaysian property sector remains subdued in the near term on the back of a slow residential market, as developers work to address the overhang issue.
AmInvestment Bank said the sector has been experiencing a challenging time in the past three years, particularly the residential property segment, mainly due to high property prices, stricter lending policies, volatile macroeconomic conditions and weak consumer sentiment.
“The last 12 to 18 months have seen some changes whereby the residential property market has been adjusting to mass-market affordable housing while developers have slowed down their launches and are working hard to clear unsold units to reduce the overhang situation,” it said in its report today.
The research house said only Sunway managed to achieve stronger new sales year-on-year, while IOI Properties Group’s sales were similar to the previous year’s level with both developers being supported by strong take-ups in China and Singapore.
“We do not expect to see surprises in earnings for the next 12 months with the current local market condition,” it added.
On the bright side, developers are more aggressive in clearing unsold units by offering discounts and the inventory level is on a declining trend. AmInvestment Bank believes that this is a positive move to realise cash flow albeit at the cost to their profit margins.
It said companies like Mah Sing, Titijaya and EcoWorld will do slightly better in 2H as their new projects are entering the matured stage, hence the companies’ ability to recognise higher revenue.
It also expects UEM Sunrise to achieve stronger results in 2H following the completion of its Australian projects.
Meanwhile, retail real estate investment trusts (REITs) remain resilient and the outlook for retail properties, especially shopping malls, is expected to remain stable in the short to medium term.
This is demonstrated by Pavilion REIT and Sunway REIT, whereby both have high occupancy rates in their shopping malls. AmInvestment Bank has “hold” calls on both REITs, with fair values of RM1.81 and RM1.87 respectively.
“We believe the high occupancy rates are also due to strong management and brand names of the REITs, in addition to shopping complexes becoming one-stop centres for the Malaysian lifestyle, providing food and beverage, and entertainment options,” it said.
For industrial properties, demand remains stable driven by the logistics and warehousing segments which are largely supported by the emergence of e-commerce.
The preference for logistic warehouses will likely continue to be within the Klang Valley, largely in Shah Alam, where there is a large concentration of manufacturing activities and distribution centres.
However, the outlook for the office sector will be negative in the medium term due to oversupply, as 20 million sq ft of additional office space in Greater Kuala Lumpur are targeted for completion in the next three to four years, while market absorption remains slow.
AmInvestment Bank maintained its “neutral” view on the property sector with top picks being Sunway and IOI Properties Group. It also maintained its “neutral” view on REITs given the high valuations, and advised investors to buy on weakness.
