Bullish Outlook For Property
WHILE 2007 will mark a neutral year for the mass property sector as a whole, the high-end and niche market is expected to continue flourishing.
The outlook for the high-end property developers is looking bullish, and this can also be attributed to the recent easing of rules by the Government on foreigners owning residential properties.
Analysts believe that despite the neutral property outlook this year due to excess supply in the market and cautious consumer sentiment, high-end developers will continue to deliver superb results and enjoy the benefits of the latest ruling. This trend has already been reflected in earnings of property companies.
“Those with a focus on high-end segment such as IGB Corp Bhd, Sunrise Bhd and E&O Property Development Bhd (E&OProp) have seen significant earnings growth this year, while the ones with focus on the mass market, such as MK Land Holdings Bhd and LBS Bina Group Bhd, have seen earnings down sharply due to poor sales,” says OSK Investment Research.
High-end property companies with land in very sought after addresses, for instance in Mont' Kiara and Damansara, will have even more bargaining power in raising their selling prices amid rising land prices. This will eventually lead to stronger profit margins.
With that, developers are likely to be more aggressive in land purchases, especially if it involves super prime areas in the enclaves of KLCC, Damansara Heights and Mont' Kiara.
HLG Research, too, is neutral on the sector as a whole as it does not see a broad-based recovery in the sector. Nonetheless, it shares OSK's view that it is best to focus on niche medium-high end residential property developers as well as the commercial segment, where the demand-supply situation is more favourable.
OSK Research says that the strength of the high-end or niche developments and the weakness of the mass market can be explained by demography.
“The fastest growing age group is from 50 to 54 at 6.6%, followed by 55-59 at 6.1% and at 45–49 at 3.7%. Growth in these age groups has increased their proportion from 23.9% in 2001 to 26.3% as of the second quarter of 2006,”
“These are the likely age groups of house buyers in the high end segment as they are more affluent and also more likely to be buying their second or third properties for investment,” says OSK Research.
As demography does not change overnight, OSK Research believes that the current trend of strong high-end segment will remain in force in the next year.
Despite being neutral, HLG has listed a few positive catalysts, which could fuel property demand and share price performance of property stocks. These include:
Stabilisation of interest rate, potentially trending down;
Multiplier effect from implementation of Ninth Malaysian Plan projects, especially for the Johor and Penang property markets;
Improving affordability ratios as a result of expected lower interest rates;
The stock market wealth effect, which may encourage stronger property demand; and
Stronger ringgit (already happening) that may lead to an asset reflation play that benefits prime residential properties and commercial
At the same time, it is not only the Kuala Lumpur Composite Index that has been attracting foreign interest. It appears that foreigners are now eyeing stakes and joint ventures with local property company.
This has recently created quite a significant impact on the share price of certain property stocks. Foreigners, namely Singapore’s CapitaLand Ltd, has been making aggressive advances in the Malaysian property scene.
Last month, Eastern & Oriental Bhd (EOB) sold 32 million shares in E&O Prop to Capital International for RM64mil. The sale proceeds represent approximately 11.4% of the latest audited new assets of EOB group as at March 31.
Capital International, based in California, now manages total funds of US$300bil. It is part of Capital Group Companies Inc, which has a fund size in excess of US$1.15 trillion within North America, Europe and Asia.
The Capital Group also bought a further 1.51 million shares in SP Setia Bhd, raising its indirect stake in the company to 45.3 million shares.
CapitaLand has also been looking to expand into Malaysia, as it sees “tremendous growth potential” in Malaysia's real estate industry.
“The Malaysian real estate market is undergoing a stage of rapid growth underpinned by healthy economic performance frequently boosted by the provisions in the five-year Ninth Malaysia Plan,” the firm says in a statement.
In January, YNH Property Bhd, via unit Kar Sin Bhd, signed a memorandum of understanding with CapitaLand Commercial and Intregrated Development Ltd to jointly develop a piece of freehold land in Kuala Lumpur's Golden Triangle.
The company has proposed to develop a landmark office tower and retail centre. Kar Sin has a 60% stake in the project and CapitaLand Commercial, 40%.
CapitaLand also teamed up with two Malaysian partners for a RM650mil project in Kuala Lumpur. The local company has taken a 39% stake in a joint venture with Malaysian Resources Corp Bhd and the Quill Group to build residential and service apartments near the city's rail hub, KL Sentral. Construction is scheduled to begin in early 2008 and should be completed in about three years.
On the real estate investment trust scene, Capitaland has a 30% stake in Quill Capita Trust, which listed on Bursa Malaysia last Monday. This RM276mil trust comprises four commercial buildings in Cyberjaya, Selangor, which are tenanted to high-profile multinational corporations DHL, HSBC and BMW.
Maybank has also partnered CapitaLand to set up a US$250mil (RM885mil) closed-end private equity fund that will invest in Malaysia's property sector.
The fund, which will be set up via a company called Malaysia Commercial Development Fund Pte Ltd (MCDF), is domiciled in Singapore.
It will invest in the development and redevelopment of commercial, retail, residential, offices and mixed-developments in Malaysia.
It will be CapitaLand's first and largest funds in Malaysia, with an expected gross development value (GDV) of US$1bil (RM3.54bil). The fund manager is MCDF Management Pte Ltd, also a subsidiary within the CapitaLand Group.
As the year unfolds, it will not be surprising to see more cross-border joint ventures taking place. This will be more apparent especially among high-end property developers with strategic landbank and niche developments.
Source :The Star 03/02/2007 Close Window