Property Sector - Further cooling measures not needed Overweight

   In the run-up to the Budget 2013 presentation at the end of this month, there has been speculation that the government would impose several cooling measures, e.g. hike in Real Property Gains Tax (RPGT) and stamp duties, to cool the property sector. 

 However, we do not agree such measures should be introduced especially when transaction volumes have not been robust and price growth has reached a plateau over the past one year or so. More importantly, from an economic standpoint, further restrictive policies for the sector would accentuate the weak domestic demand in our economy – given the sector’s high multiplier effect – amid strong external headwinds. 

 

 In addition to that, we are expecting the maiden tender for the parcels of land at the RRI Land in Sg Buloh soon. Given that this is one of the key Economic Transformation Programme (ETP) projects, any curbing measures would discourage healthy bidding for the available plots of land.

 

 Given that Budget 2013 is expected to be an ‘election budget’, we believe focus would very much centre around affordable housing, with a more robust scheme expected. We gather that PR1MA  & My First Home Scheme (MFHS) have not taken off in a desirable manner with reports of high rejection rates – quite a significant number of applicants are ineligible and only slightly over a third of the applicants were approved by financial institutions. 

   Recall that My First Home Scheme (MFHS) and PR1MA were introduced last year to enable young working adults with salaries of RM3,000/month and RM6,000/month to obtain up to 100%-105% financing to buy their first homes costing up to RM220k/unit and RM400k/unit respectively, with a repayment period of up to 30 years. 

 From our channel checks, there could be several selective policy relaxation which includes: (1) Additional guarantees provided to financial institutions to support first-time property purchases, (2) Longer repayment periods for PR1MA and MFHS from the current 30 years, (3) Lower stamp duty for properties priced at between RM500k-RM700k, i.e for those not eligible for MFHS and PR1MA, and (4) Tax deductions on housing loans. 

 Apart from that, we are also not ruling out the possibility of a proposal to replace low-cost housing with medium-cost housing requirements to encourage a greater participation of property developers and this would address the lack in supply of properties priced at between RM300k and RM400k. This would mean the government being the sole supplier of low cost housing, i.e. those priced between below RM100k to RM200k. 

  We maintain our OVERWEIGHT stance on the property sector because current valuations are depressed with property stocks trading at steep discounts of 40%-50% to NAVs, with new sales guidance very much intact and we believe there will be a return of pent-up demand in properties. We expect the market to re-rate established township players such as IJM Land (FV: RM3.80/share) and Mah Sing (FV: RM3.60/share) with Bandar Rimbayu and Southville City as key developments to drive sales.

 Meanwhile, we have HOLD recommendations on Sunway Bhd, Bandar Raya Developments and S P Setia.   

Source: AmeSecurities