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Saturday, February 28, 2009

A long and tedious road ahead

It’s the results season again and the numbers rolled out by property companies are rather disappointing and point to poor take-up and an overall gloomy backdrop for developers.

Most of the companies recorded a huge drop in sales, some by more than 50%, in their latest financial quarter compared with the same period in the previous year.

The results are at least 5% below street estimates despite them having downgraded the sales and earnings expectations of property companies for the last two quarters since the middle of last year. Delays in construction works and slow sales are among the main culprits for the weak numbers.

While potential buyers are taking longer to decide or even deferring their decision to commit to any major purchase, including buying a house for now, given the prevailing gloomy outlook in the economic front, most developers are also holding back project launches as they worry about low take-up rate.

The extent of the adverse impact on developers depends on a few factors - size of unbilled sales carried forward from previous years, financial strength, creativity and product mix in their portfolio.

Although the high unbilled sales, especially from record sales in 2007, are still contributing to the financial books of developers this year, they will be depleted soon if sales continues to slow.

This year and to a certain extent 2010, property companies are still expected to turn in decent earnings due to the large unbilled sales brought forward from the last two years.

However, if launches continue to be deferred and plummeting sales do not bottom out, earnings contraction post-2010 could kick in.

Unless developers become more proactive and creative by adding more value and tweaking their product offerings to meet the changing market conditions, they will be in for many more quarters of underperforming results.

Special promotions and easier payment packages by some developers have proved to be effective so far and contributed to higher sales for them. The right product mix is also important. Developers that are catering to the mass market and building more affordable housing are still recording quite decent sales while those with more high-end products are not as lucky this time.

While Malaysia has been spared a hard landing unlike most of the developed economies which were hit almost instantaneously by the US-led global financial crisis, the poor financial results being unveiled show that the widening impact of the global financial crisis is already at Malaysia’s doorstep.

Going by the extent of damages reported across the length and breadth of the globe, it will be a long and tedious road ahead for Malaysians.

As one CEO puts it, it is now a question of survival for most companies and not about how much profit they are going to make.

Companies have either drastically cut down on dividend payment or are not declaring dividend at all, in their quest to conserve cash for more rainy days ahead.

Whether the prevailing low interest rates will be effective in reining in the slide in domestic demand and economy is left to be seen, especially when prices of food and fuel are still high, while the people’s confidence is at its ebb.

Besides providing a lifeline to the various business sectors, the Government’s second stimulus package, or mini budget, to be unveiled on March 10, should focus on offering some direct benefits to the people to tide over their dire straits caused by the global financial upheavals.

The focus should be to reach out to the people, especially the lower income group, including those who have recently lost their jobs due to companies that have downsized or ceased operations.

To promote home ownership among the people, it will be most beneficial if the Government is able to meet the request by the Real Estate and Housing Developers Association to give a RM10,000 grant to first-time house buyers of property priced below RM300,000. Granting full stamp duty exemption for property transactions will also be another effective measure to lower transaction cost for the people.

·Deputy news editor Angie Ng hopes that by casting the stimulus net as wide as possible to reach the needy business sectors and the common folk, the Government’s money will be well spent when all Malaysians rally and work together for a fast track recovery of the economy. And the funds have to be disbursed quickly to be effective.

By The Star (by Angie Ng)

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