The year 2009 is coming to a close, and what a rollercoaster ride it has been for the local bourse and the real estate scene. Sentiment picked up towards the second half of the year. Bank Negara Malaysia data show that loans approved for the purchase of residential property for October 2009 rose 60.7% to RM6.87 billion, from RM4.27 billion a year ago. Loans approved for the purchase of non-residential property the same month rose 40.9% y-o-y to RM2.55 billion.

Apart from the recovering economy, a low interest rate regime and fear of rising inflation helped propel property sales. An additional factor was the announcement that — effective Jan 1, 2010 — a 5% fixed Real Property Gains Tax (RPGT) would be levied on gains from real estate transactions, irrespective of when the property was acquired. Some transactions are known to have been hastened to avoid the tax.

While interest rates are expected to inch up, CIMB Research, in a Nov 26 report, expects Bank Negara to retain the overnight policy rate at 2% until 1H2010 due to the absence of significantly higher inflation risk and asset bubbles as well as to ensure a firmer real recovery.

The Bursa Malaysia Property Index rose 43.5% to close at 754.73 points on Dec 21, from 525.84 points on Jan 2Meanwhile, the Bursa Malaysia Property Index rose 43.73% to close at 755.8 points on Nov 30, from 525.84 points on Jan 2. At press time on Dec 21, the index closed at 754.73 points.

How have liquid property stocks, those with a market capitalisation of above RM500 million, performed for the 11-month period ended Nov 30? Research by City & Country shows all of them ending the period on a positive note.

Generally, stocks that sparkled were those which had been heavily sold down in 2008. Among the top gainers were IJM Land and  Eastern & Oriental Bhd (E&O), both of which had undertaken corporate exercises that impacted on their share prices during the period. Another solid performer was UEM Land Holdings Bhd, which was listed on Nov 18, 2008.

Top performing stocks
According to data from Bloomberg, the top five performing property stocks capitalised at more than RM500 million for the 11 months are IJM Land Bhd, UEM Land Holdings, E&O, YTL Land & Development Bhd and Sunway City Bhd (SunCity).

The share prices of Mah Sing Group Bhd, S P Setia Bhd, Krisassets Holdings Bhd, KLCC Property Bhd and Selangor Properties Bhd also gained during the period, but by a significantly lower margin.

ECM Libra Research associate director Bernard Ching notes that while UEM Land was listed in November 2008, the other top gainers had been heavily sold down last year, shedding as much as between 65% and 84%, before rebounding in 2009.

On the other hand, the relatively smaller gainers this year outperformed the rest in 2008. The former, too fell last year but by a relatively lower quantum of 16% to 38%, says Ching.

“As market conditions improved in 1Q2009, stocks previously sold down heavily rebounded more strongly due to their compelling valuation. As for dividend-yielding investment property counters such as Krisassets and KLCC Property, investors are more willing to take on more risks [in buying property development stocks for earnings recovery] this year compared to last year when most were risk averse [buying dividend yield stocks],” he says.

He adds that developers that have undertaken cash call have not really seen adverse share price performance post-cash call, with the exception of E&O.

During the review period, E&O undertook a  one for two rights issue of irredeemable convertible secured loan stocks (ICSLS) at 65 sen to pare down debts. At the closing price of 93.5 sen on Nov 30, its share price tumbled by as much as 28% post the ex-date (Oct 19: RM1.30) of the rights issue.

E&O shareholders had in August this year approved proposed renounceable rights issue of up to RM246.9 million nominal value 10-year ICSLS due 2019, which will put the group on a solid footing to consolidate its earning drivers.

Nevertheless, E&O’s share price rose 103.26% during the 11-month period. The stock was CIMB Research’s top property pick on Sept 3. The research house recommended the stock as a “trading buy” at RM2.18 after tagging a 30% discount to its adjusted fully diluted revised net asset value per share (RNAV/share) of RM3.11. The stock surged 13% to close at RM1.47 on Sept 3. On Dec 21, it closed at 96 sen with 1.46 million shares done.

For IJM Land, its share price surged to RM2.29 on Nov 30, from 68 sen on Jan 2. Formerly known as RB Land Holdings Bhd, the company acquired, in August 2008, 100% of IJM Properties Sdn Bhd for RM1.222 billion, satisfied by RM822 million cash and the issuance of RM400 million nominal value of 10-year 3% RB Land redeemable convertible unsecured loan stocks (RCULS).

To help finance the acquisition, RB Land undertook a renounceable rights issue of 454.549 million new RM1 shares. It also issued 227.274 million detachable warrants at an issue price of RM1.25 per rights share on the basis of four rights shares and two warrants for every five existing shares held in RB Land. The exercise price of the warrant was fixed at RM1.35 per share.

IJM Land’s share price jumped 10% to RM1.98 on Aug 13, the most since Jan 5 this year after AmResearch raised its target price on the stock to RM3 from RM2.40 on the back of signs of a recovery in the sector. It closed at RM2.31 last Monday (Dec 21) with 113,000 shares changing hands.

For UEM Land, from a mere 57.5 sen per share on Jan 2 this year —  the lowest during the 11-month review period — the stock improved 159.13% to RM1.49 on Nov 30.

As the master developer of Nusajaya — the flagship Zone B of Iskandar Malaysia in Johor — UEM Land is most exposed among local companies to the Dubai debt crisis. Its residential development joint venture with Dubai-based companies — Limitless Land and Millennium Development — has not seen much progress.

The pullout of Damac Properties, a Dubai property company, from a RM397 million deal to buy three commercial land parcels in Puteri Harbour in June this year also caused UEM Land’s shares to tumble 6.6 sen — the most in 2½ months.

On the bright side, other projects such as the development of a biotechnology park in Nusajaya and a Family Indoor Theme Park in Puteri Harbour, Johor, are on. Malaysian Biotechinology Corp Sdn Bhd has also teamed up with UEM Land in September on a 60:40 basis to set up a biotechnology park, dubbed “Bio-Xcell”, at the Southern Industrial and Logistics Clusters in Nusajaya. The project has an initial investment of RM550 million. Other foreign tie-ups announced last year include the building of Legoland Theme Park by 2012 as well as the setting up of Dutch Maritime Institute and Newcastle University of Medicine by 2011.

YTL Land & Development’s share price doubled from Jan 2 to RM1.02 on Nov 30. It has been reported that the developer will continue to launch new projects next year but will pace the projects out to match market demand to maintain its profitability.

Meanwhile, the share price of SunCity, which is looking to list a real estate investment trust (REIT) in 2010, grew 64.64% or by RM1.17. The developer has been reported to be planning launches worth more than RM1 billion in 2010.

On Oct 28, SunCity said it would collaborate with Sino-Singapore Tianjin Eco-City Investment and Development Co Ltd to develop projects with an estimated gross development value (GDV) of RM2.48 billion on a 98.8-acre site in China’s Tianjin Eco-City. Tentatively, 88% would comprise a residential property component, while the remainder would be commercial, including an integrated business centre.

Smaller gainers
Mah Sing’s share price also went up during the review period but by just 7.5% to RM1.72. Nevertheless, the developer has been actively securing landbank at prime locations. These include two parcels of industrial land totalling 12.9 acres in Bukit Jelutong in Shah Alam, six parcels of 26.08 acres in Selayang, a 19.6-acre tract in Petaling Jaya and a 115.25-acre plot in Cyberjaya for residential development.

The developer has on Oct 28 proposed a bonus issue of up to 151.3 million new shares on the basis of one bonus share for every five shares.  At press time, it has yet to announce the entitlement date.

S P Setia, meanwhile, rose 11.78% or 37 sen. It is noteworthy that on June 8, 2009, the stock climbed to a 52-week high of RM4.24 after it inked a cooperation agreement with Hangzhou Ju Shen Construction Engineering Ltd to set up a joint venture for a mixed property development in China’s Zhejiang province. However, the counter tumbled the most in 15 months to RM3.84 on June 19 after reporting a 15% fall in net profit in 2QFY2009 ended April 30.

For FY2009 ended Oct 31, its group net profit dropped 19.78% to RM171.23 million, from RM213.46 million in FY08. This was on the back of a 4.76% drop in revenue to RM1.4 billion, from RM1.47 billion before. HwangDBS Vickers Research, in a report on Dec 11, 2009, says the results was within its expectation; it maintained a “buy” call on the developer at a higher target price of RM4.80, from RM4.45 previously.

Selangor Properties, Krisassets and KLCC Property rose by 12.72%, 15.38% and 16.6% respectively during the period under review.

Property sector to outperform in 2010
The convergence of sustained property demand and the recent price correction affecting property stocks have led ECM Libra to believe that the property sector will be an outperformer going into 2010. It has recently upgraded its call on the property sector to overweight as valuations are more compelling now.

“We believe developers with residential properties catering to middle to upper middle class such as SunCity to benefit from strong demand and hence, re-affirm it as our top pick for the sector. Besides, its property investment earnings will also ensure sustained earnings visibility. Among pure developers, we like Mah Sing and IJM Land,” Ching says.

On the overall real estate market next year, Ching is positive on the market, what with property buyers having started snapping up properties due to low mortgage rates and improving economic outlook. He believes   the current low mortgage rate and improving consumer sentiment will sustain residential properties demand going forward.

“Catalyst that may boost the property sector further is the impending announcement by Employees Provident Fund (EPF) in January 2010 on the details of a scheme which will enables EPF contributors to utilise current and future savings in Account 2, which is likely to boost housing affordability especially among first time home buyers.

“Developers are looking more confident in rolling out new launches, following the overhwelming response to recent launches. Since hitting a bottom in 4Q08, take-up rates of new launches have picked up. As of 2Q09, take-up rates of newly launched properties within the same quarter rose to 31.7%, which was the highest since 4Q05,” he adds.

(Note: The 30-component FTSE Bursa Malaysia KLCI [FBM KLCI] was launched on July 6 this year to replace the 100-member Kuala Lumpur Composite Index [KLCI] in order to keep Bursa Malaysia relevant in the global market.)

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 787, Dec 28, 2009-Jan 10,2010.