Property: Johor expected to be 'next big thing'

PROPERTY sales gained momentum in the second half of the year as the market adjusted to a Bank Negara Malaysia ruling to contain the rise in consumer debt.

The central bank decided to use net instead of gross income to calculate the debt service ratio for loans from January 2012.

The better performance led to most property firms meeting their sales target for the year with some even exceeding expectations.

Property players in the Klang Valley had their fair share of excitement from, among others, the formation of real estate investment trusts (REITs) by IGB Bhd and KLCC Property Bhd.

"REITs were interesting due to yield compression. IGB REIT was listed this year while the others sought inorganic growth by acquiring new assets," says Loong Kok Wen, an analyst with RHB Research.

There were also the scaling-up plans of property developers, like the proposed merger between Malaysian Resources Corp Bhd and Gapurna Sdn Bhd, and Dijaya Corp Bhd's amalgamation, which involved the injection of RM1 billion of assets privately held by its largest shareholder Tan Sri Danny Tan.

There was also talk of Dijaya eyeing a merger with Mah Sing Corp Bhd, but analysts say the latter's recent proposed rights issuance is perhaps a signal that Tan Sri Leong Hoy Kum wants the company to expand on its own. Leong is the largest shareholder of Mah Sing.

However, RHB's Loong says the corporate exercises of developers this year had little impact on property stocks due to the less encouraging sentiments on the overall sector.

The rollout of the government's first Projek Perumahan 1Malaysia project was also a boon for the sector.

Moving into 2013, while analysts look forward to the award of the Rubber Research Institute land project in the Klang Valley, they expect Johor to be the "next big thing".

"The Klang Valley is already saturated. Penang is great for niche developments but there can't be big momentum there as the island is too small.

"In Johor, with the Singaporeans buying and pushing up demand - it's phenomenal. Johor developers will have a good story to tell," says another analyst who favours developers with land in Johor.

And who could be a bigger player than UEM Land Bhd, which is poised to benefit from the RM46 billion worth of development agreements sealed in Iskandar Malaysia and Danga Bay in December alone.

They include the RM3.5 billion Motorsports City project on 270 acres near the Tuas Second Link, which will be developed by UEM Land and FASTrack Autosports Pte Ltd, a company controlled by Singapore billionaire Peter Lim.

UEM Land has also tied up with Chinamall Holdings Pte Ltd to develop a trade and exhibition centre in Nusajaya.

Adding to the excitement was the acquisition of 55 acres of waterfront land in Danga Bay for RM900 million from Iskandar Waterfront Holdings Bhd by one of China's largest property developers - Country Garden Holdings Co Ltd.

IWH, which is headed for listing as early as the first quarter of 2013, is jointly owned by entrepreneur Tan Sri Lim Kang Hoo and state-controlled Kumpulan Prasarana Rakyat Johor.

Still, the hype in the Klang Valley and Johor was not enough to change the minds of most industry analysts who have a "neutral" or "fairly valued" recommendation on the sector.

"It's a policy-driven domain that's avoided because of regulation issues. Plus, it's tougher for developers who have achieved billion-ringgit sales to outperform as things are getting more challenging now.

"S P Setia Bhd, for example, will have to look overseas as it already has the highest revenue base around," says a property analyst, adding that the acquisition of the Battersea Power Station in London in 2012 was a landmark deal for the company.

Accordingly, not many have turned bullish on UEM Land.

"After two disappointing quarters in a row, I would have called a 'sell' on the counter but maintained 'market perform' as I believe the company's immense prospects will eventually lift the shares. UEM has a good chance for re-rating. In fact, if not for the coming election, I would have called a 'buy' on the stock," says an analyst.

Analysts generally agree that while new developments slated for early 2013, such as the imposition of a higher real property gains tax (RPGT), are unlikely to be significant dampeners, the re-rating of the sector will have to wait until after the 13th general election. Loong, for one, expects the sector to grow strongly in 2013, largely driven by the population cycle, influx of liquidity and stronger gross domestic product growth.

"The key dampener will be the uncertainties associated with the general election. The sector should see a relief rally post-election," she adds.

As it is, macroeconomic concerns and uncertainties ahead of the election have caused an overhang in property counters.

"With a higher level of uncertainty ahead of the polls, even more people will avoid buying homes," an analyst points out.

Thus, investors are advised to buy selectively in the sector.

Some of the favourites are UOA Development Bhd, which offers a 7% dividend yield supported by strong earnings and a net cash position.

"Those who didn't get burnt in the initial public offering can UOA shares for the dividends," says an analyst who covers the stock.

The analyst also likes IJM Land Bhd for its exposure to the Johor Baru city centre. IJM Land had, in March, tied up with Tan Sri Tan Hua Choon of Goh Ban Huat Bhd to expand its landbank in the state where it already has its RM3 billion flagship project called Sebana Cove.

"We think IJM Land best represents the property sector in Malaysia, after S P Setia. It's a developer with a reasonable size, diversified landbank exposure across key states and a wide product range. Potential M&A or corporate exercises could also be on the cards," observes Loong.

Analysts are also having a relook at Sunway Bhd after its unit, Sunway City Sdn Bhd, acquired 779.07 acres of land in Pendas, Nusajaya, through a joint venture with Iskandar Investment Bhd (IIB) for RM412.7 million in early December.The transaction cements Sunway's position as one of the largest landowners there and, hence, an emerging Iskandar Malaysia player.

This is in addition to the 691 acres acquired a year ago, bringing Sunway's total development land in Johor to 1,558 acres with a potential gross development value of RM25 billion.

This story first appeared in The Edge weekly edition of Dec 24-31, 2012.

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