Developers of affordable housing may ride downturn better

IN the light of the slowdown in the property sector, developers with a chunk of their sales in affordable housing are expected to weather the storm much better than those with high-end products, say analysts and real estate consultants.

Among the property developers listed on Bursa Malaysia that are expected to chalk up healthy growth this year are LBS Bina Group Bhd, MKH Bhd and Tambun Indah Land Bhd. Construction company Gabungan AQRS Bhd is also a beneficiary as it has been awarded contracts by Perbadanan PR1MA Bhd, which has been mandated by the government to plan, develop, construct and maintain high-quality housing for middle-income households in key urban centres.

LBS Bina has been in the limelight for a while now partly because of its focus on affordable housing in the Klang Valley — the largest property market in Malaysia — where there is an acute shortage of inexpensive homes.

The group’s jewel in the crown is its Bandar Saujana Putra township, where it still has 162 acres of undeveloped land. In the first quarter ended March 31, 2016, LBS achieved new sales of about RM265 million, up 13.2% year on year and 25% quarter on quarter. That made up 22% of its 2016 target of RM1.2 billion.

Its unbilled sales stood at RM1.1 billion in 1Q2016, which underpins its earnings for the next two years, or equivalent to 1.7 times its 2015 revenue, according to JP Apex Securities Bhd analyst Lee Chung Cheng.

This year, LBS plans to launch projects with a gross development value of RM1.9 billion, with 82% of the sales value concentrated in the Klang Valley. Elsewhere, the group is launching terraced and semi-detached houses with a GDV of RM86 million in Batu Pahat.

“We learnt that the group’s soft launches for its existing projects have garnered encouraging take-up thus far, especially for its landed residential properties in the Klang Valley. Desiran Bayu (bumiputera lots) has been fully booked with a sales value of RM180 million while D’Island has received over 70% bookings with a GDV of RM100 million,” Lee states in a June 1 research note.

LBS Bina’s share price has risen 13.77% so far this year and closed at RM1.57 last Wednesday. All four analysts who cover the stock have a “buy” recommendation on it and a consensus target price of RM1.84. Public Investment Bank has the highest target price of RM2.08.

Kajang-based MKH too builds affordable homes in the Klang Valley but its share price has not rallied as much as that of LBS Bina, closing 5% higher so far this year at RM2.52 last Wednesday. However, it is touted as the biggest beneficiary of the Sungai Buloh–Kajang MRT project as it has a foothold in the Kajang-Semenyih corridor. Its low land cost in the growing corridor will give it greater pricing flexibility, thus enabling it to weather the current slowdown.

“We expect MKH to do well in property development, given its entrenched brand name in the Kajang-Semenyih growth corridor and stronghold in the affordable housing segment. This has placed the company in an enviable position with property sales and unbilled sales continuing to chalk up new highs.

“Strong unbilled sales of RM828 million (1.2 times FY2017 property revenue) imply high earnings visibility going forward,” says AllianceDBS Research analyst Quah He Wei in a May 30 note. The research house has a “buy” call on MKH and a target price of RM3.20.

Up north, Tambun Indah is the leader in affordable housing in Penang — probably the second most important property market in Malaysia. Its flagship development is Pearl City in Simpang Ampat, Seberang Perai Selatan, Penang.

However, Tambun Indah’s share price has increased less than 1% so far this year and closed at 95 sen last Wednesday. This can be attributed to market jitters following a delay in securing the advertising permit and developer licence for two of its projects in Pearl City last year.

This year, the company plans to launch four projects in Pearl City with a total GDV of RM364 million.

Despite its lacklustre performance, the stock should be back in the groove, says JF Apex’s Lee, who has targeted a fair value of RM1.51.

“We reckon that the group’s sales are back on track with its concentration on affordable housing aimed at genuine homebuyers. Though market sentiment on the property sector continues to be cautious, we advise investors to accumulate the stock in view of its undemanding valuation,” Lee states in a May 19 note.

In the first quarter, Tambun Indah’s new sales increased to RM115.7 million, significantly higher than the RM70.3 million achieved in 4Q2015 but lower than the RM146.3 million posted in 1Q2015.

Gabungan AQRS’ tie-ups with PR1MA and the Pahang government are expected to boost its profile and earnings going forward. The group has secured a contract worth RM424 million to build PR1MA homes in Kuantan as well as to develop the state’s new administrative centre.

On June 21, the company announced that it had received a non-binding letter of intent from PR1MA for the proposed purchase of 1,140 apartments owned by the group in Sepang at a price that is to be agreed upon later.

“Gabungan AQRS is vying for the RM300 million Pahang government administrative centre project. It is also exploring opportunities to develop affordable housing in other states with a potential multibillion-ringgit GDV,” says Affin Hwang Capital analyst Loong Chee Wei in a May 23 note.

Social housing programmes may tighten supply

SOCIAL housing programmes implemented by the federal and state governments may have an unintended outcome. There is a possibility that upcoming projects may get affected by the requirement, says a property consultant.

While acknowledging the need for such programmes, she says due to the current slowdown in the property market, developers are holding back the launch of new projects because they might not be able to sell the units allocated to the social housing programmes.

“If you are looking for approval for new housing projects in Selangor, half the units are price-controlled to make them affordable. Some developers are wondering whether it is good to launch now because they would then have to bear the cost of Rumah SelangorKu,” the consultant adds.

In April, Selangor Housing and Property Board (LPHS) executive director Norzaton Aini Mohd Kassim said developers of serviced apartments in the state may need to set aside a percentage of the units as affordable homes.

It was reported then that the new guidelines were pending finalisation and would be announced by the end of June. It is not known if this panned out.

Efforts to reach Datuk Iskandar Abdul Samad, the Selangor executive councillor for housing, building management and urban living, were not fruitful at press time. There was also no reply to an email sent to LPHS requesting an interview for the purpose of finding out the status of the new guidelines.

With developers holding back their launches in the light of the new guidelines, the consultant expects a housing supply squeeze in Selangor by the end of next year. This could bolster property prices in the state going forward, although it might not address the soft demand.

A property agent working for IJM Land Bhd in Seremban 2 says there is still demand for new launches in the township. However, many of the applicants have been unable to secure financing from the banks due to the 75% loan-to-value ratio.

“Sales are good but the loan rejection rate is rising ... the situation is still okay but we need to monitor closely and offer prospective buyers an easy financing plan,” the agent tells The Edge.

According to IJM Land’s website, the group is offering an instalment-free period of up to 12 months, low down payment, 0% interest instalment scheme of up to 36 months and even a free three-days two-nights stay at Club Med Kani Maldives for selected properties.

Sometimes, even the value of your home can be a mystery. Go to The Edge Reference Price to find out.

This article first appeared in The Edge Malaysia on July 4, 2016. Subscribe here for your personal copy.