Property stocks hit by tightening concerns

KUALA LUMPUR: The broader market saw red yesterday, with property stocks index the worst hit, dropping 3.96% to 1,317.97 points compared with the FBM KLCI's 1.01% decline.

The top losers in the property sector included medium to large developers such as Crescendo Corp Bhd, Hua Yang Bhd, OSK Property  Holdings  Bhd, Ivory Properties Group Bhd, UOA Development Bhd and even Mah Sing GroupBhd.

According to dealers, the sell-offs could be due to investor concern over a possible tightening of policies that might be implemented by Bank Negara Malaysia.

Rumour had it that the central bank could be looking at curtailing the developer interest bearing scheme (DIBS) and possibly hiking the overnight policy rate (OPR).

However, a property analyst explained that the fundamental impact of DIBS on the property sector would be small because developers apply this only to certain projects. He said developers under his coverage have less than 30% of their developments exposed to DIBS.

The analyst also believes the central bank will not hike the OPR this year. However, it is likely that banks might tighten lending to the property sector. "When lending tightens, this will affect transactions in the property sector," said the analyst.

Another factor that contributed to the sharp fall in the property indices, he said, is the sector's high beta. "When the general market falls, property stocks fall more."

As property counters have seen a strong rally over the past few months, investors could also be rushing in to cash in their profits as the market begins to show a pullback, he said.

At the macro level, news of the US Federal Reserve tapering down its quantitative easing (QE) programme has created knee-jerk reactions across global markets.

Another analyst said the reason for the sharp drop in the property index is the general undertone in the market. "It could be because of a slowdown in China, QE and the concern over tightening policies locally as well as the pulling out of hot money," he said.

Mah Sing was one of the worst performers in the property index. Analysts told The Edge Financial Daily they believe that one of the reasons for its sharp fall yesterday was its cash call. The stock fell 6.71% to RM2.78 yesterday from RM2.98 at last Friday's close.

This article first appeared in The Edge Financial Daily, on June 25, 2013.



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