PETALING JAYA: In recent times, the property sector has been battered by negative headwinds such as escalating building material costs, chronic labour shortages, and interest rate hikes. However, AmInvestment Bank (AmInvest) believes the storm has passed and remains overweight on the property sector.
“Notwithstanding various negative headwinds in the property sector, we think the current depressed valuations have already been priced in the downtrend commencing early April 2022,” it said in its property sector report.
With the gradual easing of building material costs and labour shortages, the investment bank believes the present Kuala Lumpur Property Index price-to-book value of 0.4 times is appealing versus the 10-year average of 0.7 times and pre-pandemic (2018-2019) average of 0.5 times.
It said building material cost has reached its peak in Q2 CY2022 following the easing of supply chain disruptions, together with tightening of monetary policy by the US Federal Reserve.
“For example, steel prices in the peninsular had dropped 28% to RM3,132/mt in October 2022 from a high of RM4,344/mt in April 2022,” it said.
With the stabilisation of material costs, developers will begin to scale up and launch new properties. AmInvest also believes the cost for materials could be offset by the adoption of industrialised building systems (IBS), bulk purchasing and value engineering.
“In Q3 CY2022, we have seen developers including UEM Sunrise, SP Setia and Mah Sing increasing the number of new launches as compared to first half 2022 due to more stable building material prices,” it said.
The manpower shortage is also expected to ease up in 2023. As of early December 2022, 1.4 million foreign workers with a temporary work pass had entered the country.
“To draw comparison, the number of total foreign workers in Malaysia was 1.8 million, pre-pandemic. It is anticipated that this will accelerate construction progress of ongoing projects in 2023.”
With four consecutive overnight policy rate (OPR) hikes in 2022, and another hike of 25bps coming in January 2023 to round off the OPR to 3%, AmInvest said this marks interest rates returning to pre-pandemic levels. Although this will dampen consumer sentiment, it believes this is the tail end of the rate hike cycle.
“Based on our sensitivity analysis, monthly instalments for a property purchased at RM500,000 with 90% loan financing will increase by RM66–69 or 3.3%–3.5% for every 25bps hike,” it said.
In another move that will benefit the sector, the Malaysian government has introduced the premium visa programme (PVIP) to attract wealthy foreigners to invest and reside in Malaysia for 20 years.
AmInvest said the PVIP was well received with 20,000 applications from agents on the day of launching. It views this as a positive indicator for Malaysia’s high-end residential real estate market, particularly for developers like SP Setia, UEM Sunrise and Sime Property that focus on high-end residential units.
Another lever the government has introduced was the stamp duty exemption under i-MILIKI to boost affordable properties. Under this scheme, homebuyers can enjoy stamp duty waivers for properties priced at RM500,000 and below. This is expected to benefit majority of developers as most projects are largely skewed to prices below RM1 million, it said.
“We are also seeing developers support the government’s effort such as Rumah Selangorku, Rumah Mampu Milik Wilayah Persekutuan, and Rumah Mampu Milik Johor.”
Its top buy is Sunway (Fair value (FV): RM2.29) given strong brand recognition established by its highly successful landmark developments and expanding healthcare business, supported by substantive unbilled sales and outstanding order book.
It also favours Lagenda (FV: RM1.64) for its focus on underserved and affordable landed housing developments in second-tier states with a large population of B40 and M40 income groups.
“We also like Mah Sing (FV: RM0.86) for its strength in affordable housing developments at strategic locations as well as savvy execution and its quick-turnaround business model,” it added.