CIMB Equities Research maintained an overweight call on the property sector after Bank Negara Malaysia (BNM) slashed the overnight policy rate (OPR) by 25bp to 3%.
“Although the KL Property Index has inched up 3% post-OPR cut, we believe there is still an upside to property share prices, supported by the catalyst of recovery in property sales,” it said.
“Eco World remains our sector top pick. A sudden economic shock is the key downside risk to our sector call.”
Notably, the property sector is trading at 0.8 times price-to-book value (P/BV) at 30% discount to its 10-year average of 1.16 times. The research house expects banks to lower their base lending rates and base rates after the cut in OPR.
In fact, every 25bp reduction in borrowing rate will see monthly instalments for a 30-year mortgage drop by 3%. This will also increase the purchasing power of homebuyers by a similar quantum. The reduction in interest payments could also increase the disposable income of consumers, due to lower interest payments. This could also positively affect consumer sentiment.
Since Q3 2014, interest in home acquisitions fell along with consumer sentiments. An improvement in consumer sentiment can boost homebuyer’s confidence, resulting in a higher demand for property.
In upgrading the sector to overweight in February 2016, CIMB Research said it expects property sales in the second half of 2016 to be better half-on-half as consumer sentiment gradually recovers from the subsiding effects of low crude oil prices, political uncertainty and shock from the weak ringgit.
It also noted that the cut in OPR supports its view of improving consumer sentiment in 2H 2016, which could lead to property sales recovering sooner rather than later.
Mangalesri Chandrasekaran, Editor at PropertyGuru, edited this story. To contact her about this or other stories email mangales@propertyguru.com.my
