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Tuesday, August 11, 2009

Brokerages’ views on property market mixed

PETALING JAYA: Following the recent positive policy changes to liberalise the Malaysian property sector and news that Hap Seng Consolidated Bhd acquired a 50% stake in Menara Citibank, analysts have mixed views on the local property market outlook and the performance of commercial properties.

OSK Research sees Hap Seng’s acquisition of a 50% stake in Menara Citibank (pix) in Kuala Lumpur for RM235.4mil as a fair price

In its latest report, OSK Research said in 2009, office space in the Golden Triangle and central business district should fare relatively better than other areas, given the limited new supply of office properties.

This is despite the impending strong competition from Bangsar, Pantai and Petaling Jaya areas commencing this year, coupled with other factors such as over-congestion and astronomically high rental rates in centralised areas that are likely to intensify the decentralisation trend.

“Having said that, we do not expect many multinational corporations to move into cheaper outer suburban office alternatives.

“Most foreign CEOs are likely to prefer close proximity to the city infrastructure and city-based clientele,” the brokerage said in a note to clients.

OSK said to date, office space buildings which had been in existence for years had an estimated gross cap rate of 7%-10% (or higher) in the Klang Valley while new upcoming office buildings were estimated at an average gross cap rate of 6%-7%.

The brokerage sees Hap Seng’s acquisition of a 50% stake in Menara Citibank in Kuala Lumpur for RM235.4mil as a fair price.

“The estimated acquisition price of RM828 per sq ft would translate into a gross cap rate of about 7.5% for the office space component.

“We think this is rather a fair valuation, especially given the fact that the office space market is currently in a transition mode into a tenant’s market,” it said.

As companies would be more aggressive in cutting their occupancy costs amid the subdued business outlook in 2009, the Klang Valley prime office market would be hit hard by the incoming new supply this year, especially in the decentralised regions, OSK said.

However, centralised areas like the Golden Triangle and central business district would likely escape from the over-supply cycle in 2009.

OSK expects 2012/13 to be more painful, not only to the decentralised regions but also the centralised ones. The economy during that period would have to absorb the slack left over from the 2009/10 downcycle, it noted.

Meanwhile, HwangDBS Vickers Research said it expected more transactions by local investors in the near future, and possibly the return of foreign investors due to the improved global credit markets and economic outlook/sentiments.

“We find a return of large commercial transactions following recent positive policy changes to liberalise the Malaysian property sector. The abolishment of local equity requirement for mergers and acquisitions and Foreign Investment Committee approvals is encouraging,” it said.

HwangDBS said Malaysia Property Inc, a joint public-private sector initiative, could go a long way in helping to promote Malaysian properties which were still cheap viz-a-vis regional markets with no restriction on foreigners buying freehold properties.

It maintains its positive view on the local property sector and developers with significant exposure to the commercial segments, including KLCC Property Holdings Bhd, Malaysian Resources Corp Bhd (MRCB) and IGB Corp Bhd.

It recommends a “buy” call on KLCC Property and MRCB with a target price of RM3.70 and RM1.50 respectively, while IGB is not rated by the research house.

ECM Libra Investment Research said it anticipated the property sector had bottomed out and was recovering given that several developers had planned new launches after a difficult period over the last 12 to 18 months.

It maintains its “neutral” call on the sector and remains selective on its stock picks, preferring mid to small capital property developers where valuation is more compelling.

ECM Libra upholds its “buy” call on Sunway City Bhd and Sunrise Bhd at a target price of RM3.60 and RM2.85 respectively.

By The Star (by Rachael Kam)

1 comment:

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