With the Covid-19 pandemic causing major upheaval within the global economy, majority of property developers in Malaysia are still weighing their options on whether they will continue or defer future launches.
“Developers are assessing the current economic situation. We believe consumer sentiment remains weak for the time being with spending mainly focused on necessities while big-ticket items such as properties take a back seat,” said AmInvestment Bank Bhd (AmBank) Analyst Thong Pak Leng as quoted by the New Straits Times (NST).
The introduction of movement control order (MCO) from 18 March to 12 May to curb the spread of Covid-19 has put the country’s economy in a pause for nearly two months.
With this, the research house kept its “neutral” view on Malaysia’s property sector as it expects the outlook for the next 12 months to remain challenging, while no earnings surprises were expected in the short to medium term, reported NST.
Nonetheless, developers under AmBank’s coverage expect to remain profitable for the financial years 2020 and 2021 since they have reasonable amount of unbilled sales, said Thong.
AmBank does not expect companies such as S P Setia Bhd, Eco World Development Group Bhd (EcoWorld) and Malaysian Resources Corp Bhd to register strong revenue recognition for the next 12 months as many of their projects are still in their early stages.
“On the other hand, we remain cautious about the financial leverage of some companies as it is one of the key factors to their survivability during an economic downturn. Based on our data, the net gearing of developers under our coverage is still under control, averaging at about 36 per cent while interest coverage remains strong at about eight times,” said Thong.
He revealed that Crest Builder Bhd has the highest net gearing at 92%. It is followed by EcoWorld and S P Setia with 67% and 60%, respectively.
Meanwhile, Thong expects Malaysia’s affordable property segment to perform better.
“This is well reflected by the move by the majority of local property developers to focus on this segment,” he said.
He noted that the reintroduction of Home Ownership Campaign and the real property gain tax (RPGT) exemption for Malaysians on the sale of residential properties from 1 June 2020 to 31 December 2021 are positive news for developers.
He expects these key measures to improve the house buyers’ overall sentiment as well as the residential property market.