Property not as hot as investors think, says Kenanga Research

THE property sector has retained its ‘neutral’ call at a local research house due to the persistent oversupply and home ownership now being even more out of reach given the elevated interest rates, sustained high inflation and the introduction of targeted fuel subsidies that may erode spending power of certain consumer groups.

“While most developers have been able to register decent sales, this is achieved via very selective and measured launches and by ensuring not overcrowding the market with the new offerings. Contrary to what stock investors wish to believe, few foreigners take interest in Johor properties,” it said in a note released today (Oct 6).

Kenanga Research said it remained cautious on the sector’s outlook given the weakened consumer sentiment due to high inflation and elevated interest rates.

“Not helping either is the imminent introduction of targeted fuel subsidy which may deny subsidised fuel access to part of the M40 group, eroding their spending power, particularly on big ticket items such as properties,” it added.

Its sector top pick is Sunway Construction Group Bhd with a 52-week target price of RM2.27 given its diversified businesses which provide a cushion against any singular industry downturn and its growing healthcare business. The stock closed at RM1.91 yesterday, valuing the company at RM2.47 billion.

The report noted that the banking industry loans approval rate for property based on Bank Negara Malaysia’s (BNM) recent July 2023 release reflected a slight increase for the month at 44.1%, compared to 43.5% in December 2022.

“We reckon macro and income conditions could be less worrying as economic recovery is somewhat positive and hence more palatable for the banks’ appetite. That said, present readings are still far from the peak of 50% during the industry’s upcycle between 2011-2014.

“We opine approval rates may continue to remain stable at mid-40% given the lack of visible near-term investment returns from property assets. While we wait for BNM’s 1HCY23 Financial Stability Review for the national household debt-to-GDP statistics, 2022’s closing of 81% as opposed to the pre-pandemic high of 88% may indicate lower confidence in borrowing amongst consumers which could linger,” it said.