KUALA LUMPUR (Sept 23): Public Investment Bank Bhd has maintained its “Overweight” rating on the property sector, but cautioned demand remains soft due to deteriorating affordability and more stringent lending weighing down on it.

In a sector note, analyst Tan Siang Hin said sales growth has slowed down with several developers already toning down their sales target from the beginning of the year.

He said purchase of big ticket items such as properties would take a back seat for now, given the negative wealth effect and cautious sentiment.

“We believe that property stocks are trading near undeserving distressed valuations. By looking at recent peak and trough price to book value, the downside from current sector valuations is circa 30% but the upside is about 77%, offering an attractive risk-to-reward proposition,” he said.

However, Tan added that despite the tough operating environment, chances of a collapse of property prices are miniminal.

“Barring any exogenous shocks, we believe property prices will stay firm as evident by the average of 10.6% over the last three years.

“Hence, we believe the asset value for property companies’ such as land and investment assets is still intact,” he said.

In general, most developers are still seeing growth in the second quarter of 2015 due to the health unbilled sales, leading PIVB to believe that revenue would remain encouraging in the second half of this year.

PIVB also noted that property launches were smaller in size, due to current market and focus was on landed properties in the affordable segment.

He said the bank would continue to stick with companies that have low holding costs, such as cheap landbank and strong balance sheets.

“With some trading even more than 50% discount to book value, we believe holding the stocks would give investors exposure into real assets cheaper than physical properties, which should move up in tandem with inflation in the long run

“That said, the current sour sentiment could stay longer than expected, but current prices [that] investors are getting [are] about 3% dividend yield on average,” he said.

At 10.42am, the properties index was trading 0.57 points or 0.05% to settle at 1,159 points, bucking broader FBM KLCI losses which was down 20.37 points or 1.25% lower at 1,615 points.

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