More affordable housing making its way to market
Kenanga Research says the property sector continues to improve based on what it sees dissipating concerns over affordability...
The research unit pointed out that this is compared to the 38% (aggregate sales) growth in 2021 and an estimated 3% growth in 2022.
The overhang of units in residential property had started to moderate, as the third quarter of 2022 (3Q22) saw a contraction of 2.7% versus a growth of 9.6% in the previous quarter.
“New demand will help absorb the oversupply units in the market gradually,” said RHB Research, but added it was unsure if the easing momentum will continue over the near term.
Property prices are also expected to see a mild growth of 2% to 3% in 2023, from the lows of 0.7% in 3Q22 and 1.9% in 2021.
The research unit noted the House Price Index growth has been sluggish in the last three to four years, weighed down by a prolonged supply glut in the residential and other sub-segments in real estate.
Further, RHB Research noted that property sales in the nine months of 2022 were encouraging with aggregate sales flat compared with a year earlier.
“We attributed the strong property sales to the positive sentiment arising from the re-opening of the economy and, as such, the prospects of stronger economic growth in 2022,” said the research unit.
Some developers think sales were partly driven by “fear” of buying more expensive properties in the future.
This was given the rise in building material costs and higher mortgage lending rates in the second half of 2022.
To a certain extent, demand may have also been lifted by the government’s i-Miliki scheme.
Here, full stamp duty exemption was offered to first-time home buyers for properties priced up to RM500,000 and a 75% discount on the stamp duty for those buying properties priced from RM500,000 to RM1mil.
This incentive is for sale and purchase agreements completed by December 2023.
RHB Research also pointed out that the valuations of many property stocks have generally factored in the negative impact (on housing demand) of interest rate hikes.
“With much of the rate hikes likely frontloaded, the pace of increase is expected to decelerate in 2023,” it said.
“The market generally expects another 25 to 50 basis-point hike in the overnight policy rate or OPR in the first half of 2023.
“This interest rate upcycle may possibly approach its end in 1Q or 2Q of 2023,” added the research unit.
RHB Research said the risk of political uncertainty in the country was wearing thin after the 15th General Election, and the market should have higher expectations on economic growth.
This goes for a stronger inflow of foreign direct investment too.
Other re-rating catalysts for the property sector include improving market sentiment due to China’s easing lending restrictions on developers and softening stance on its zeroCovid policy.
“As the equity market sentiment improves, with expectations of some meaningful economic reforms ahead, we expect the high-beta property sector to outperform – especially given current depressed valuations,” said the research unit.
RHB Research prefers developers with diversified exposure to capture the full benefit of the economic re-opening.
As demand for property tends to be cyclical and more sensitive to policy changes, companies with retail malls and hospitality assets are expected to benefit from the return of foreign travellers and resilient domestic tourism.
“Both IOI Properties Group Bhd and Sunway Bhd recently opened new retail malls, and the pipeline of investment properties should strengthen their recurring incomes further,” said RHB Research.
