News: Analysts Expect Property Market To Continue Sluggish Performance In 2020

Jan 14, 2020

With developers not seeing much improvement in the property market for 2019 (as it remained affected by high levels of unsold stock, slower economic growth and affordability issues), analysts predict the conditions to remain sluggish in 2020. 

Despite the KL Property Index recording a rise in the beginning of 2019 with a high of 964.6 points on 21 February, the trend became negative for the rest of the year with the index settling to 747.62.

For the last quarter of 2019, a slight rebound in the index was recorded, increasing 11% to 830.62 on 31 December. The overall 5.19% drop in 2019 was, however, lower than the 6.02% decline in the benchmark FBM KLCI for 2019, reported The Edge Markets.

Many listed developers recorded drops in their share prices for that year, while several property counters appreciated in 2019 with some by more than 100%.

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They include YNH Property Bhd, which gained 109% and recorded positive results for the year by reaching a 61% increase in net profit amounting to RM24.42 million for the nine months ended 30 September 2019.

“This signals that the property market outlook remains soft, in our view. We also observe that the bigger developers, except Sime Darby Property Bhd, slightly missed their respective 2019 new sales targets versus smaller mass market players, such as Mah Sing Group Bhd and LBS Bina,” said Ngo Siew Teng, analyst for CGS-CIMB.

“This could be due to the higher price points for the products offered by the bigger developers, in our view.”

He said National Property Information Centre data reveals total residential property transactions rising to 2.1% year-on-year (y-o-y) in 3Q 2019. This was led by units priced from RM150,000 to RM200,000 that saw an increase in value of 13% y-o-y.

Residential units valued at RM250,000 to RM300,000 had their transaction value rise by 6% y-o-y, while residential properties priced above RM1 million saw their transaction value decline by 16% y-o-y. The analyst saw this as proof that there was an increase in demand for affordable properties.

Public Investment Bank (PublicInvest), meanwhile, said that margin pressure could remain in the middle of a challenging environment, because it will be difficult for developers to pass on costs via increased selling prices given that home buyers have a lot of options to choose from.

“That said, developers with low land cost will have the edge in remaining competitive currently. We also notice that the main focus of most developers is still on clearing inventories by offering discounts,” PublicInvest said.

“Despite selling at lower margins, this inventory clearing enables developers to monetise the assets and strengthen their balance sheets to weather through the prolonged demand weakness.”

While a majority of research companies do not predict much change in the property sector’s conditions, TA Securities analyst Thiam Chiann Wen has a different view and gives the sector an “overweight” rating.

Thiam explained that the property market is showing signs that it is bottoming out and developers’ share prices should be able to catch up.

“Incentives from Budget 2020 should help to address the oversupply and financing issues. In addition, we continue to see the accommodative interest rate environment to bode well for the housing market. With various efforts to spur housing market activities, we believe there are trading opportunities to buy undervalued developers,” she said.


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