Property index at 9-year low on overhang units

KLPR has bottomed out and is waiting for recovery as developers clear their inventories, says expert


THE Kuala Lumpur Property Index (KLPR) stands near a nine-year low as investors shy away from the sector due to the increasing number of overhang units and the financial impact on developers as a result.

The index closed at 770.70 points yesterday, the lowest since June 10, 2010, where it closed at 768.71 points.

In this year alone, KLPR has declined 12%, while the FTSE Bursa Malaysia KLCI (FBM KLCI) fell 7.4%.

Affin Hwang Investment Bank Bhd senior associate director Loong Chee Wei said KLPR has bottomed out and is waiting for recovery as developers clear their inventories.

“The lack of interest for the index at this point of time is due to concerns on the overhang number despite some recovery in terms of earnings for the property companies.

“The FBM KLCI also needs to show better performance, so that investors will look at the laggard indexes and the KLPR will gain more interests,” he told The Malaysian Reserve.

He added that developers are also holding back most of their launches and focusing more on clearing their inventories and affordable housing.

Loong said developers currently have healthy gearing ratios, but the main concern is on the cashflow.

“Some of them have cashflow problems as they are not able to sell their properties. They have been reducing inventories, but it will take some time,” he said.

Yesterday, KLPR was down 0.2%, or 1.51 points, as 25 shares fell, while another 26 component shares rose.

Sime Darby Property Bhd contributed the most to the index decline, decreasing 1.86%. Amverton Bhd had the largest drop, falling 7.14%.

TA Global Bhd provided the biggest boost to the index as it advanced 4.44%, while Talam Transform Bhd had the biggest gain by rising 16.7%.

Rakuten Trade Sdn Bhd research VP Vincent Lau concurred that the worst is over for the property sector, but it is too early to tell whether the index will go back to the level it was before.

“Investors are still applying the wait and- see approach for the property sector as it has been in doldrums for quite some time.

“The Budget 2020 announcement of lowering the threshold for foreign buyers to RM600,000 will help the index bounce back from the low,” he said.

He added that the government’s incentives in promoting affordable housing will also benefit companies in focusing on the particular segment.

Last week, Finance Minister Lim Guan Eng said the government will lower the threshold on high-rise property prices in urban areas for foreign ownership from RM1 million to RM600,000 in 2020, to reduce supply overhang of condominiums and apartments amounting to RM8.3 billion in the second quarter of 2019 (2Q19).

National Property Information Centre’s first six months of 2019 report showed that overhang in residential units rose by 1.5%, shops added 13.9%, small office and home offices increased 24.3% and serviced apartments jumped 59.9%.

Figures for the January through June 2019 period showed that total value of all unsold properties in the country rose to a staggering RM41.72 billion.

The total unsold properties in the 2Q18 was RM35.75 billion, as residential and serviced apartments were the largest contributors to the glut, accounting for RM19.76 billion and RM14.57 billion in total value respectively.


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