CIMB Research still bullish on property

KUALA LUMPUR: CIMB Research's report on Wednesday, July 20 said it still remains bullish on all property developers despite the heavy selldown on property stocks since last week.

The report said the property sector, with leaders S P Setia Bhd and Mah Sing Group Bhd, was sold down on the back of The Edge weekly's report on the possibility of a change in the calculation of household loans (mortgage and hire purchase) from gross pay to net pay by Bank Negara Malaysia (BNM).

"Although we expected share prices to fall on reports of possible measures to curb excessive property speculation, we are surprised by the speed and severity of the selldown. We are also surprised that the jitters have spilled over to construction companies which have much less exposure to property than the pure developers," said CIMB Research.

CIMB Research said in its report last week it had anticipated the proposal by BNM to be negative for the property sector in the short term. There has also been talk of the possibility of the proposal of a higher real property gains tax (RPGT) or a loans-to-value (LTV) cap for commercial property in the 2012 Budget which will be tabled on Oct 7, stated the report.

"Our views have not changed since last week. We think that any measures to curb domestic speculation are likely to have only a short-lived impact on physical property sales, as was the case when a flat 5% RPGT was levied in October 2009 and an LTV ratio of 70% was imposed on the third property purchase in November 2010. In both cases, the impact on the real property market was a wait-and-see attitude by buyers for two to three months before they rushed back into the market when they realised that house prices were firm and still rising.

"Even if we assume the worst-case scenario where a change in the calculation results in a 26% fall in affordability in line with the maximum personal tax rate, the affordability ratio is still very healthy," said CIMB Research.

The report said it believes the government will be careful not to implement measures that would have a strong negative impact on the property sector for three reasons. The first reason is the authorities would want to encourage home ownership and restrictions would have the opposite effect.

The next reason is the government hopes to unlock the value of its idle land in the Klang Valley and measures that would hurt the sector could result in lower bids for the land. Lastly, the performance of the property sector affects other key sectors of the economy and property restrictions in the run-up to general elections may not be popular.

CIMB Research believes that there is no widespread property bubble and the strong appreciation of properties in certain locations is largely backed by fundamentals. The price upsurge for landed property in the Klang Valley over the past one to two years by and large reflects the scarcity of land. The growth of new residential property supply has been on a decline and last year's 2.2% growth rate was the slowest on record, noted the report.

The weakness in share prices, the report said, of property developers and construction companies is a buying opportunity.

"The residential property market, in our view, remains strong, affordability is near its all-time best and we expect both home prices and transaction volumes to remain robust in 2011/12, barring any negative external shocks," said CIMB Research.

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