ECM Libra upgrades property sector to overweight

KUALA LUMPUR: ECM Libra Investment Research has upgraded the property sector to Overweight as the valuations are more compelling now and it believes the sector would be an outperformer in 2010.

Its upbeat report, released on Monday, Dec 7, said there was the convergence of sustained property demand and recent price correction affecting property stocks. These factors prompted it to believe the sector would be an outperformer.

"We believe developers with residential properties catering to middle to upper middle class such as Sunway City 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.

"Other developers which will also benefit from such sustained demand for residential properties in diverse locations include SP Setia, Mah Sing and IJM Land," it said.

The catalysts which might boost the property sector were the impending announcement by Employees Provident Fund (EPF) in January 2010 on the details of a scheme which would enable EPF contributors to use current and future savings in Account 2.

ECM Libra Research said this would likely boost housing affordability especially among first time home buyers.

However, it was negative on commercial properties, including office space providers as large incoming supply will cap capital values, occupancy as well as rent in the near term.

The research house said the only exception was KLCC Property due to the its super-prime location and master lease arrangement which will ensure its earnings sustainability.

"For commercial properties developers, we like Glomac for its prime commercial landbank and most importantly, its track record in securing en bloc sales with local institutional investors," it said.

Recently, the property sector suffered two setbacks recently. The first was the re-introduction of the real property gain tax (RPGT) from Jan 1 next year, at a flat rate of 5% of capital gains.

The second setback was the increase in mortgage rates by about 40 bps. However, the research house said mortgage rates were still remain well below historical averages.


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