Maintain overweight: According to Jones Lang Wooton (JLW), the sales rate of new housing launches in the Klang Valley inched up to 80% in 2Q11 from 78% in 1Q11. It expects good demand momentum to prevail as many buyers are owner-occupiers and there is genuine demand for houses underpinned by urbanisation, a growing population and the Greater KL plan.
The condo market in the Klang Valley also performed well in 2Q11, with take-up rate of new launches rising to 80% (70% in 1Q11), despite having the highest number of launched units per quarter since 2000.
More launches are expected in the near term, backed by the strong demand. The mass and mid-high segment and smaller units (below 2,500 sq ft) are expected to do well. The upmarket KLCC market is likely to remain under pressure due to low occupancy rate and completion of new developments in the area.
We expect the strong sales rate to continue in 3Q11, with recent launches by Mah Sing Group Bhd (Icon City) and Sunway City Bhd (Sunway Velocity) in July being well received. Developers are generally confident about achieving their lofty sales target for FY11.
Malaysian property stocks have underperformed FBM KLCI in the last four weeks due to the following: 1) Newspaper reports suggested that Bank Negara Malaysia may change the debt repayment methodology from a repayment based on a percentage of gross income (now capped at 30%) to a mortgage repayment based on a percentage of net income. 2) Generally jittery and volatile regional markets.
We do not expect the government to take any drastic measures that could adversely affect the property market as general elections are approaching, and there is no bubble in the Malaysia property market, contrary to the Singapore and Hong Kong markets.
The Malaysian property market is mostly driven by domestic demand and has a much lower number of foreign buyers compared to Singapore and Hong Kong.
We remain optimistic on the outlook for the Malaysian property market. Demand should remain robust on the back of strong domestic demand growth and a healthy consumer sentiment. We believe the current weakness in stock prices provides an excellent buying opportunity. Top picks are UEM Land Holdings Bhd and Sunway City. — Credit Suisse, Aug 5
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