Challenging property sector

The property sector is expected to remain challenging in 2016, with developers likely to face higher sales and earnings risks.

In a report, Maybank Investment Bank Research said it expected the slowdown in property demand to extend for another 12 months until 2017.

“While some projects have shown some signs of sales stabilisation, there are no signs of a broad-based pick-up just yet. We expect overall property sales to stay weak amid the slowing economic momentum.

“Cautiousness among lenders will also continue to weigh on buyers’ sentiment. Most developers are delaying new property launches and are focusing on affordable housing and clearing the existing unsold property inventories in hand.”

Maybank said company margins were likely to stay subdued or even weaker, in anticipation of more discounts, rebates and marketing incentives to lock in the prospective buyers.

“Rising compliance costs will also eat into developers’ margins. Elsewhere, various housing schemes under the Government have created a large incoming supply of affordable housing and this could pose a threat to existing players.

“That aside, developers may have to re-strategise their projects and marketing activities (for example, from bigger units to smaller units) and this could lead to delays in property launches and higher operating expenses.”

The research house said the November to December 2015 results season was a “mixed bag”, with Mah Sing Group Bhd, UEM Sunrise Bhd Sunrise and Glomac Bhd underperforming its expectations and consensus due to higher administrative and marketing costs as well as the lack of strategic land sales.

“However, Eco World Development Group Bhd and SP Setia Bhd beat expectations, thanks to stronger-than-expected progress billings at their landed property projects.

“As for Sunway Bhd, results were in line, backed by steady/strong income from its investment properties and construction division, offsetting the slowdown in the property development business.”

Maybank added that it had initially adjusted its sales assumptions and earnings forecasts for Eco World and SP Setia post their results release on Dec 10, 2015.

“We now lower our 2016 sales assumptions for the other stocks under our coverage by 20% to 48% and earnings forecasts by 1% to 27% to factor in the weaker sales prospects and delays in high-rise property launches.

“Consequently, our new target prices for these stocks are lower by 2% and 11% on lower revalued net asset value (RNAV) estimates and higher discounts of 30% and 60% to RNAVs.” - By The Star

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