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Tuesday, May 20, 2008

Mixed views on property outlook

PETALING JAYA: While share prices of property stocks have been severely sold down from their peaks, analysts are still divided over the prospects of the sector.

Aseambankers in a report said the outlook remained uncertain in the immediate future, no thanks to rising inflation, which could hurt consumers’ pockets.

Escalating building material prices also add pressure to construction cost, leading to margins squeeze and delays in new launches, it said, adding that local political risks and external economies had resulted in developers and homebuyers adopting a “wait-and-see” stance.

In the short term, developers are depending on strong sales locked in over the past two years to deliver earnings growth.

On the upside, developers were seeing general improvement in public delivery, with better efficiency and less red tape post-election, Aseambankers said.

A bank-backed brokerage said the take-up rates for most launches post-election were about 50% or less, way below what the developers had enjoyed earlier.

It doesn’t help that there seems to be some downside risk to this year’s economic growth assumptions.

The research house said buying sentiment would remain cautious, at least until Umno’s party elections in December, which might have an impact on many developers’ sales this year.

Both Aseambankers and the bank-backed brokerage have a neutral call on the property sector.

Meanwhile, another research house believes that the market is ignoring the deep value offered by some high-quality developers.

“It is not fair to apply a broad brush approach when evaluating the property sector given that there are hundreds of developers in Malaysia, each with its unique characteristics,” it said.

The brokerage added that sales of some of the high-quality developers dropped 36% in the first quarter compared with the previous quarter but were up 50% on year-on-year basis.

Unbilled sales increased 21% quarter-on-quarter and 68% year-on-year to RM6.5bil, while mortgage approvals hit a high of RM5bil in March.

The brokerage said rising inflation and raw material prices as well as domestic and external uncertainties were likely to affect demand for the low- to mid-end segments of the market.

It has an overweight recommendation on quality developers of mid-high end residential properties with portfolios of commercial and retail assets, on expectations of good take-up rates in upcoming launches, positive changes in policies, strong earnings delivery and sustained margins.

By The Star (by Yeow Pooi Ling)

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