Sector update:
Regional Property
Has The Dust Settled?
Regional Property
Has The Dust Settled?
While sentiment in
the property markets in China and Singapore have largely stabilised, we believe
the markets in Indonesia, Thailand and Malaysia would still need some time
given the existing macro headwinds. We expect upcoming elections in the region
to potentially bring volatility to the sector. However, given sound
fundamentals and continued infrastructure investments, we are OVERWEIGHT the
property sector in Indonesia, Thailand and China and NEUTRAL on Singapore and
Malaysia.
¨ 2016 performance review. The Indonesia and
Thailand property markets performed relatively better compared to other
countries in the region. Both property indices appreciated by more than 5% in
2016. Meanwhile, as expected, the Malaysia property sector was the worst
performer as the KL Property Index declined by 5% last year.
¨ Upcoming elections in
the region a risk.
In 2017, apart from the weakness in economic growth, we think sentiment would
likely stay cautious given several upcoming elections in the region. These
include the general election in Malaysia (due in May 2018), Jakarta governor’s
election in Indonesia, as well as general election in Thailand. Therefore,
market concerns on political landscape may, to some extent, hinder the demand
for big ticket items.
¨ Expect a slower 1H17
versus 2H17.
Given the challenging outlook on political and economic front, together with
volatile commodity prices and currencies, we expect the property market in the
region to likely be slow in 1H17. However, we believe sentiment may turn more
positive in 2H17as some of the concerns on the macro economy and politics
subside.
¨ Sales growth to be
stronger in Indonesia and Thailand. We continue to expect Indonesia and Thailand
to achieve stronger presales growth in 2017.After a low single-digit growth in
2016, we expect presales growth to likely hit 12% for Indonesia and 7-10% for
Thailand in 2017. The optimism is supported by the execution of infrastructure
projects, while Indonesia should continue to see the positive spill over from its
tax amnesty programme. The additional stimulus in Indonesia should also include
cheaper mortgage rate and higher loan-to-value mortgage financing. We are
OVERWEIGHT the property sector in both Indonesia and Thailand.
¨ Expect mild recovery
in Singapore and China property markets. The Singapore and China property
markets should likely see a 5-10% growth in presales/contracted sales this
year. While property prices in Singapore may take a breather, we expect sales
volume to increase given more aggressive discounts and choices offered in the
market, as developers continue to unwind their inventory. For China, we expect
property prices in Tier-1&2 cities to stay solid this year, on the back of
declining inventories in these cities. As capex and land banking by developers
have been conservative and limited, the average inventory digestion cycle for
these cities has dropped to 6-7 months, close to the low in recent years. We
have an OVERWEIGHT rating for China and NEUTRAL rating for Singapore property
sector.
¨ Expect Malaysia to
continue to underperform. We think the Malaysia property market would remain
lacklustre in 2017, with flat sales growth, after a 11% decline in 2016. Key
macro headwinds such as weak economic growth, high household debt and hence restrictive
access to credit financing are still the key challenges for the market. The
further weakening in MYR has not helped to stabilise market sentiment. While
developers would likely to be selective on launches, buyers may continue to
delay their purchase of properties. We maintain our NEUTRAL rating for the
Malaysia property sector.
¨ Stock picks. Our stock picks for
the region are Bumi Serpong Damai, Land and Houses, CR Land, City Development.
Kindly click the following link for the full report: Real Estate: Has The Dust Settled?
Best regards,
Loong Kok Wen, CFA
Head of Regional Property
RHB Securities Malaysia
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