Property overhang to remain a problem, aggressive marketing ahead, says analyst

The number of unsold units under construction is expected to add to the high inventory of completed properties.

KUALA LUMPUR: The outlook for the property market will remain challenging as supply continues to dwarf demand, said Kenanga Research.

The research firm said as property developers continue to launch new properties to keep their business operations going, the number of unsold units under construction is expected to add to the already high inventory levels of completed properties.

It said there are fewer property buyers as property prices are perceived to be less affordable, especially against a soft economic backdrop, it added.

“In response, we expect property companies to ramp up their aggressive marketing efforts to help clear the inventory holdings.

“To shore up their bottom-line, they may also be looking to monetise their non-strategic assets such as disposing of selected land parcels,” said Kenanga Research in a note today.

It said there could be opportunities for investors to bottom fish selective property stocks that are poised to rebound from their overly depressed valuations.

Under the 2020 Budget, the government lowered the threshold of high-rise property prices in urban areas for foreign ownership from RM1 million to RM600,000, targeting to ease the overhang of high-rise properties and applying only to unsold completed properties in urban developments.

The government has also introduced a Rent-to-Own financing scheme to assist first-time prospective buyers of homes below RM500,000 through a five-year rent agreement, with an option to purchase after the first year at a fixed price.

Kenanga Research said investors’ focus would be on inventory levels and balance sheet positions as inventory levels are expected to remain elevated.

“On one hand, property companies are offering attractive discounts and incentives to improve cash flows and reduce the number of unsold completed properties.

“On the other hand, these entities will still have to continue launching new properties to sustain sales and carry on their business activity, as units not taken up from these new launches will subsequently add to the inventory of unsold properties,” it said.

Against a backdrop of intense competition amid the property glut, cash flows will be essential especially for property companies with relatively high gearing, it noted.