Maintain overweight: Recent statistics released by the National Property Information Centre (Napic) revealed that overall property transaction value was up +7% year-on-year (y-o-y) to RM163 billion, while volume changed hands rose +0.8% to 384,060 y-o-y.
As for the House Price Index, average house prices were 7% higher y-o-y, which moderated from the average of 10.6% over the last three years. As in the fourth quarter of calendar year 2014 (4QCY14), the transaction value showed a downtrend after declining -14.2% y-o-y to RM38.6 billion and volume declined -4.5% y-o-y to 94,523 transactions, reversing the uptick in the first three quarters (when value cumulatively rose 15.8% and volume added +2.6% to 289,537).
Residential property, which constituted the bulk of the volume transacted (about 65% of total property volume), saw a marginal increase of +0.4% y-o-y, which again was dragged down by continued weakness for properties less than RM200,000, which eased -13.5% in 2014 after a -29.3% slump in 2013. Properties from RM200,000 to RM500,000 also moderated to +12% y-o-y in 2014 (as compared with +27% y-o-y in 2013). Interestingly, properties more than RM500,000 (the target market of most property developers) are still resilient after registering +21.2% growth y-o-y in 2014 vis-à-vis +20.3% in 2013.
With a slew of cooling measures introduced since 2009, property transactions have slowed down with the residential properties moderating from more than 30% growth levels to about 20% growth currently.
Anecdotal evidence showed that demand is also restricted by tighter lending from banks. We also note that loans applications are on a downtrend. Hence, we believe the cooling measures have successfully stemmed unhealthy speculative buying and introduced more discipline in lending.
The post goods and services tax (GST) hangover on consumer demand and tougher lending environment may mean property developers could see another challenging year. The cooling measures, we believe, have worked according to their intended purpose to arrest spiralling property prices and stem unhealthy demand as shown by recent evidence that demand has weakened.
Additionally, property sales guided by developers are mostly flattish, but we view the targets are still healthy with most targeting the RM2 billion to RM3 billion levels. As long as we see a steady and sound growth in the sector, we believe the sector still offers value. As indicated in our earlier report, buying into property stocks would give investors exposure to real assets cheaper than physical properties which should move up in tandem with inflation in the long run.
It will take a while for the negative sentiment to go away, but go away it will as we believe the inflationary environment is generally positive for properties. — PublicInvestResearch, May 8
This article first appeared in The Edge Financial Daily, on May 11, 2015.
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