Property outlook rosy in 2014 despite cooling-off measures - Part 4

Focus MALAYSIA WEEKLY ISSUE 055

THE WEEK OF DECEMBER 21 – DECEMBER 27, 2013

Review 2013 / Outlook 2014 --

By: FocusM

This year was generally a positive and vibrant one for the property sector, with the low-interest regime, special schemes like developer interest-bearing scheme (DIBS) and higher loan margins of up to 90%, despite some house-buyers holding off on the purchasing decision before the general election in May.

The recent cooling measures announced in Budget 2014 and those taken by Bank Negara Malaysia to end special schemes offered by developers are seen by many as timely moves to curb speculative activities.

As the market takes time to digest and absorb these measures, will there be renewed interest in the property sector, given that demand outstrips supply?  Will this be the right time for potential property buyers to go into the market, more so with the implementation of the GST on April 1, 2015?

FocusM spoke to developers, the Real Estate and Housing Developers’ Association, the House Buyers Association and an analyst on the performance of the property sector in 2013 and the outlook for next year.

LEE CHUNG CHENG, JF Apex Securities head of research

How did the year pan out for the property sector?

The property sector has outperformed the FBM KLCI year-t-date (21% vs 8%).  The property index staged a sharp rally post the 13^th general election in May, buoyed by a rising investor appetite for high-beta stocks.  Also, the positive performance was partly due to a re-rating of developers having landbank / projects in Iskandar, following positive newsflow, robust property sales and rising residential prices in Johor.

What are your expectations for the sector in 2014?

For the physical property market, we expect the transaction volume to come down in 2014 while we anticipate property prices will be flattish due to recent property cooling measures which will drive away speculators.  The removal of the DIBS and the RPGT hike effective January 2014 may affect buyer sentiment temporarily and we anticipate fewer launches by developers in H1 2014.  However, buying interest will pick in H2, driven by pent-up demand.  Hence, we are “neutral” on the sector, following a good run of share prices this year.

What do you think will be the key events and challenges that will shape the sector’s prospects next year?

Catalyst for next year: a) Infrastructure development such as the MRT2 & 3; major highways in Klang Valley – KIDEX, DASH, SUKE, lrt 3; High Speed Rail from KL to Singapore; b) the listing of megadevlopers such as IOI Properties, Medini Iskandar, Iskandar Waterfront Holdings, the PNB Property Trust; asset injections of Ecoworld into Focus Aim Bhd; premium valuations of megadevelopers will spill over to existing property players; c) the award of federal land development (Rubber Research Institute of Malaysia, Bandar Malaysia, Tun Razak Exchange, Bukit Bintang City Centre) could stir investor interest in the sector.

Upside risk: GST & raw material costs hike could propel a property rush.

Downside risk: stringent lending policies (such as loan amount being based on the net selling price so buyers are required to fork out more in downpayments) and a potential hike of interest rates by BNM.