Property outlook turns cautious

KUALA LUMPUR: Industry players and research houses have started to turn cautious on the outlook of the property sector, especially in the higher-end segment, on the back of declining growth rate of residential loan approvals and poor external factors.

This comes amidst the rollout of some mega property projects such as the 1Malaysia People’s Housing Programme (PR1MA) and the impending development of large tracts of land surrounding Greater KL’s integrated urban transportation system.

“There have been mixed signals from the indicators, namely the (upward trend) transaction volumes and the (downward) growth rate of residential loan approval,” CLSA Asia Pacific Markets said in a research note on Wednesday.

“As such, we are becoming more cautious on the share price performance of the property developers and have downgraded our sector rating to ‘neutral’ from ‘overweight’,” it added.

CLSA said it believed certain elements of optimism of the physical market had been priced in the stock prices of the property developers.

“The persistent price growth for each quarter may not be sustainable going forward given that such strong performance had continued for the past six quarters consecutively,” it said.
The slowing growth rate of housing loan approvals and negative external factors have prompted research houses to look at downgrading ratings on Malaysia's property sector

Indeed, the KL property index had outperformed the KLCI last year and the first half of this year by 11.3% and 3.8% respectively, mainly supported by consistent year-on-year house price growth of 6% to 8% in each quarter since the fourth quarter of 2009.

Notwithstanding that, CLSA said the potential change in computing household loan based on net income rather than gross income, though currently just at the proposal stage, was likely to impact the higher-end residential units if implemented.

Nonetheless, an industry player said there shouldn’t be any worries as long as the location of the property was strategically situated but admitted that the sector’s outlook looked gloomy in the medium term.

“Although prices of these properties can still go down such as those seen during the Asian financial crisis in 1997, they will recover strongly when the economy is back on track,” an industry player said.

“But anything longer than two years from now, I can’t really tell. I am a bit cautious as the external factors are still looking pretty negative,” he added.

He said the external factors included the negative outlook in the US recovery story, spread of the eurozone debt crisis and inflationary pressure in countries such as China.

Indeed, the recovery of the US economy still looks bleak. According to a recent news report, the US trade gap widened much more than expected in May as a jump in oil prices helped push imports to the second highest level on record.

The trade deficit amounted to US$50.2 billion (RM150.6 billion), the highest since October 2008. This is on the back of its imports rising by 2.6% to US$225.1 billion, the highest since the record of US$231.6 billion set in July 2008 just before the global financial crisis took a huge toll on global trade.

Adding to that was the persistent euro sovereign debt woes. Moody’s Investors Service on Tuesday, cut Ireland’s credit rating to junk status, saying the country will likely need further official financing before it can return to international capital markets.

Although growth in China still remained intact despite annual gross domestic product (GDP) growth easing to 9.5% in 2Q11 from 9.7% the previous quarter, inflationary pressure still remained a major concern in the world’s second largest economy.

An analyst said although projects such as the PR1MA and MY Rapid Transit would continue to give a boost to the property sector, the overall economic growth of the country was still dependent on its trading partners.

According to a report quoting International Trade and Industry Minister Datuk Seri Mustapa Mohamed, US and China topped the country’s top five export destinations in 2010.

Nevertheless, property launches are still hot in the country. For one, Mah Sing Group Bhd recently rolled out its RM3 billion Icon City, located at the intersection of Damansara-Puchong Highway and the Federal Highway in Petaling Jaya.

According to news report, the first phase of the project, 30 Jewels, comprising seven- and eight-storey lifestyle shop offices was recently previewed and 19 units valued at RM192 million were taken up.

The second phase, which comprises two- and three-storey retail lots, small office versatile offices and residential units, are now opened for registration. According to news reports, the offices, with built-ups of 750 sq ft and 990sq ft, were priced from RM750 psf.

With the gloomy outlook in the global economies and declining growth rate of residential loan approvals in Malaysia, it remains to be seen if the property sector, be it property stocks or property prices, can sustain its growth in time to come.