The stronger sales witnessed at recent property launches have improved investor perceptions on demand for property as well as ease concerns on speculators’ fire sales affecting property sales within the primary market.
“Most funds still underweigh property stocks in their portfolios but we sensed that sentiment on the sector had improved, compared with during our roadshow in late March 2016, when there were grave concerns about the perceived oversupply of properties and the decline in housing affordability for the general public,” said the research house.
Notably, the high take-up rate indicates that consumer strength is returning to the property market.
With this, CIMB Research expects property developers to launch more mass-market properties over the coming months.
Sticking to their launch targets, seven property stocks under its coverage had even lined up a series of properties, the majority of which targets the mass market.
The research house expects the property stocks to achieve good take-up rates given the undersupply of mass market properties during the last few years.
It noted that strong take-ups may further improve investor sentiment on property stocks.
“A recovery in property sales in the second half of 2016, driven by improving homebuyer confidence and more launches of mass market properties, could trigger a re-rating in property stocks’ prices,” it said.
In fact, the supply of affordable homes depends on property developers and their land bank, said CIMB Research analyst Saw Xiao Jun.
“While there may be land available for the development of affordable housing, the land is usually expensive, whereby developers will not be able to earn sufficient margins to cover the land and investment costs,” he said.
For now, investors remain underweight on property stocks due to the lack of a strong catalyst for property sales in the near term.
CIMB Research recommend stocks with strong management and decent dividend yields for investors concerned on falling into a value trap but is looking for exposure in property as these stocks “offer stable returns as well as share price upside when the recovery in demand for physical properties gains strength.”
These stocks include Mah Sing Group Bhd, UOA Development Bhd and LBS Bina Group Bhd.
CIMB Research’s top sector pick is still Eco World Development Group Bhd even though the prospective dividend yield of the company is less than one percent.
Of the developers under its coverage, Eco World offers the highest share price upsale since it is the most leveraged, operationally and financially, said CIMB Research.
Mangalesri Chandrasekaran, Editor at PropertyGuru, edited this story. To contact her about this or other stories email mangales@propertyguru.com.my
