BANKING AND INVESTMENT NEWS
Property Prices Expected To Hold
Despite Plummeting Oil Price
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I
nvestors are shying away
from property stocks and
underweighting the sector while
the equity market saw the result
of declining oil prices and the
weakened ringgit.
“The units transacted in the
primary market saw a decrease of
32% year-on-year in 2013 but has
However, the property prices are
still expected to hold despite lower
volume in the near term.
Despite the lower volume, house
prices appear to be holding well with
the House Price Index increasing
by 10% year-on-year in 2013,
supporting the transaction value
growth despite the volume drop.
“The sales targets of big
developers are still in the RM2
billion to RM3 billion levels,
which we believe is still a healthy
replenishment rate. In addition,
the good sales chalked up in
recent years also bumped up
unbilled sales of developers,
with some having accumulated
unbilled sales that are enough to
underp in earnings for the next
two to three years.
“We are of the view property sales
might see demand, albeit slower
but we do not believe there will
be drastic price corrections in the
offing,” said Public Investment Bank
(PIVB) in its research note last Friday.
In a report by SunBiz, property
sales for most property developers
were toned down of late, due to
the challenging environment and
demand uncertainty due to the
Goods and Services Tax (GST)
which is effective April 2015.
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have also increased substantially,
with total contributions and
compliance costs rising to as high as
25% of the total gross development
value for a landed and mixed
development while conversion
premium has gone as high as 300%.
Again, transactions for properties
valued more than RM1 million have
in fact been on the uptrend despite
concerns of high household debt
and cooling measures.”
www.PropertyHunter.com.my
since improved, judging from the
19% year-on-year increase in the
first half of 2014,” it said.
“Hence, unless the property prices
corrected drastically, we believe
property sales should still be
healthy despite lower volume and
demand should normalise in six to
nine months post-GST.”
In terms of loans, the base
lending rate is still at low levels
and noted that property lending
is still forthcoming with loans
disbursements and applications
still higher than the five-year
average despite slowing growth.
“Notwithstanding the challenges,
we are of the view that property
prices should be holding well,
supported by price inflation of
input costs and high land prices.
Construction costs have doubled
from 2003 to 2013.
“Also, we understand that land
conversion and compliance costs
Meanwhile, property consultants
believe that 2015 will be a good
year for buyers and investors, as
the property market is expected to
correct itself in terms of pricing due
to the various cooling measures and
implementation of GST.
Raine & Horne International
executive director Lim Lian Hong
said 2015 will provide buyers and
investors with more choices.
“Properties in the long
run are always good
investments and a hedge
against inflation. At the
current moment, our ringgit
seem to be weakening and
property may be a way of
preserving the value of your
savings. On the other hand,
there will be more choices
coming into the market and
you may get a good buy if
you are patient,” said Lim.
Lim noted that buyers will need to
adjust to the newer cost post GST
and there would be a rush to buy
commercial and industrial properties
before the implementation.
“2015 will be a buyers’ year…the
various affordable housing schemes
will also provide first-time buyers
with more options to consider. This
would result in developers becoming
more prudent and creative in
their product offering and pricing,
catering more to middle and upper
class buyers where the demand lies,”
told Zerin Properties CEO Previndran
Singhe in an interview recently.
He said market conditions this
year will also attract more foreign
investors especially Singaporeans
who will be driven by the
weakening Ringgit.
According to Previndran, the first
quarter of 2015 will see a hike in
property transactions as buyers
rush to buy properties, especially
non-residential properties, to avoid
the price increase associated with
GST. In response, more developers
will rush to complete their projects
before April 1, 2015.
“The commercial market, especially
office space leasing, is expected to
feel the impact of falling crude oil
prices which would affect the oil and
gas industry,” he said.
Post GST, the property market will
remain flat with lesser transactions
and property launches in the
second quarter as both buyers and
developers adopt a wait-and-see
approach to assess and evaluate the
impact of the GST before starting to
experience nascent recovery in the
second half of the year, once the
market has adjusted to the effects
of GST.
“Overall, the property market in
2015 will remain flat as a result
of GST implementation, the effect
from various cooling measures and
fluctuations of global oil price while
2016 will witness strong growth in
the property market,” he added.
More Mergers And Acquisitions To
Come With GST — M&A Securities
Retail REIT To Continue
Outperforming Office REIT In 2015
H
ong Leong Investment
Bank (HLIB) expects retail
real estate investment
trust (REIT) to continue
outperforming office REIT this
year given the pricing power and
higher rental income potential from
positive rental revision.
M
ergers and acquisitions
(M&As) will continue
to dominate the
local market, say
analysts at M&A Securities Sdn
Bhd (M&A Securities) following the
government’s plan to go ahead with
the implementation of the Goods
and Services Tax (GST).
“2015 will be a period of
consolidation following the
government’s bold plan to go
ahead with GST implementation,”
the firm said in a note. “This will
inevitably choke and cause risk
averseness in consumer spending
and hence, the performance of
private consumption, our long term
anchors of growth.
“To offset against this, the
government is prepared to dish
out even bigger targeted financial
assistance on top of generous tax
cut for all income brackets. Hence,
the impact will not be as severe as
initially thought.”
M&A Securities notes that this
year’s fiscal revenue may not get
that much of positive impact due
to targeted financial assistance
but in 2016, the full year impact
could be big, and is expected to
contribute over RM30 billion into
fiscal revenues.
“Nonetheless, 2015 will be a
challenging year mainly due to
the current weakness in global
commodity prices. A prolong
weakness may result in export
revenues to take a hit.
“To make matters worse, demand
for our commodity may continue
to suffer due to China’s economic
slowdown, the eurozone economic
doldrums and India’s economic
challenges.
“On top of that, the outlook on
global commodity market looks
murky at best and is poised to
tumble once the US starts hiking
its monetary rate. The prognosis is
less-than-upbeat so to speak.”
M&A Securities also predicted
a poss ible policy response in
2015 as a measure to defend
the ringgit and avert financial
market instability arising from the
US next policy step. “Given that
Bank Negara Malaysia has set the
Overnight Policy Rate ceiling to 3.5
per cent, the possibility of 25 basis
points in policy rate hike is there
and we predict it to be as such.
HLIB, in a research note, said strong
rental revision for retail REITs would
be underpinned by sustained
consumption growth, albeit at a
slower rate, in the country.
“While GST will be a dampener for
retail REITs, we see no significant
impact as the government has
broadened the list of items in the
zero-rated and exempt supplies,”
it said.
On office REIT, it said the supply
glut for office space in Kuala
Lumpur is far from over and
upcoming mega projects will create
further dent on the problem.
“The supply glut for office space in
the Klang Valley may result in rental
rates for offices to grow at a slower
pace or stagnate,” it said.
Meanwhile, on industrial REIT,
HLIB said it maintained a “neutral”
view with a positive bias on the
industrial REIT given its softer
rental reversion and limited supply
coming in the market.
The investment bank said other key
risk that could dampen the sector
included a bullish equity market,
improvement in the US economy
leading to a rise in US interest
rates and a significant slowdown
in economic activities dampening
rental reversion for industrial REIT.
“The REIT sector could
underperform in a bullish
market as investors
would prefer stocks
which give higher capital
appreciation,” it added.
HLIB said an aggressive monetary
policy by Bank Negara Malaysia
might also cause interest rates
to increase thus making REIT less
attractive.
However, it said in view of the
subdued household financing
activities and rising downside risks
to domestic growth momentum,
BNM was expected to maintain an
overnight policy rate at 3.25 per
cent for the rest of the year.
“Hence, in a positive note, we
perceive the current economic
situation as favourable for the REIT
sector,” it added.
“We don’t think that BNM would
want to adjust beyond the
‘accommodative level’ as it would
choke the economy. Putting all the
ingredients and cocktail together,
we predict Malaysia’s GDP to reach
a decelerating pace of five per cent
in 2015 from 5.9 per cent in 2014.”
Setia ECOCITY and Mid Valley in the background
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