RHB Research cautious on property sector

KUALA LUMPUR: RHB Research has turned cautious on the property sector and property stocks in the third quarter of 2011 as the property upcycle, which usually lasts for two years, is almost there.

The research house said on Monday, July 4 that property stock prices normally price in six to nine months ahead.

“While the physical market is likely to remain strong until end 2011, we believe sentiment will turn slightly negative and expect demand starts to soften possibly next year,” it said.

RHB Research said the four key concerns are the higher risk profile due to massive credit growth driven by liquidity; further monetary and regulatory tightening measures; rising inflationary pressure; and negative sentiment from regional property sector downgrade.

“As the residential segment will be subject to most policy interventions and the office segment will face massive oversupply, we are positive on the retail sub-segment, which has relatively lower supply. The appetite of local and foreign institutional funds to own strategic retail PROPERTIES [] is strong due to higher growth potential for consumption in Asian countries,” it said.

“Cap rate/yield for retail properties in KL is attractive at 11.6%, implying higher potential for assets monetisation. We hence prefer developers that own retail property assets, which market value is relatively inelastic that will help to mitigate sensitivity of RNAV,” RHB Research said.

The research house downgraded the sector rating to Neutral. It believes most of the good news, or rather expectation of strong property sales and hence earnings growth have already been factored into the share price. For sector picks, it prefers IJM Land and KSL.