It’s back to basics for the real estate sector

Real estate sector
Maintain Neutral
: Notwithstanding the current undemanding valuations, the real estate sector still lacks positive catalysts over the near term that could lead to a sustainable rerating. Most of the regulatory measures have taken effect from Jan 1 and, as such, we believe investors will need time to monitor the severity of the combined measures.

Without the interest absorption scheme, developers will have to go back to basics, that is location. Properties in good locations with amenities and mature areas will continue to be in demand. Given the affordability issue, mid-level housing and townships will fare better than high-rise and luxury products.

In 2014, we expect property price growth to be flattish, while overall transaction volumes will likely decline by 5% to 10%. Although prices will remain resilient — as land, construction and compliance costs continue to hold up — developers will find it difficult to raise selling prices further amid weak sentiment and demand. As a result, profit margins will be under pressure

Infrastructure projects are the potential catalysts in the medium term. These include the MRT Lines 2 and 3, and the high speed rail (HSR) projects. The spillover to the property market is expected to be similar to that of MRT Line 1, while the HSR development will be a big boost to the property market in the Kuala Lumpur-Iskandar Malaysia corridor.

We maintain our bullish stance on the Penang market. News flow is expected to be strong this year. Apart from the opening of the Second Penang Bridge in the first quarter of this year, Batu Kawan Bhd will see more investments that will have an overall positive impact on the property market on the mainland.

Landbank owners such as Tambun Indah Land Bhd (“buy”, target price: RM2.08), Global Oriental Bhd and Malton Bhd will be the key beneficiaries of the aggressive landbanking by the big players.  — RHB Research, Jan 7

This article first appeared in The Edge Financial Daily, January 08, 2014.


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