Soft property market to continue weighing on local property stocks

With no upsides seen for the property market for the remainder of the year, property stocks look set for a lacklustre year-end


LISTED property companies in Malaysia are bracing for a tough third quarter (3Q) as soft market conditions and weak consumer sentiment continue to prevail in 2019.

Rakuten Trade Sdn Bhd VP for research Vincent Lau said while there are some signs of a recovery in property transactions, earnings for the sector, however, are expected to remain challenging due to weak take-up rates.

“Property companies are gene-rally on the road to recovery as the weak property sales take-up, which was one of the main drags on property firms’ top and bottom lines in the previous quarter, is further expected to improve in 3Q as sentiment surrounding the industry improves,” he told The Malaysian Reserve.

Government-led initiatives such as the rent-to-own financing scheme and the lower threshold price for foreign property buyers aim to reduce the property glut in the country and allow developers to push sales.

Lau said while there may be a few positive surprises in 3Q, the industry’s recovery will unlikely translate into stronger corporate earnings just yet.

“The property sector is not so exciting yet for investors, with Bursa Malaysia’s property index trading at a low, but there is still long-term value in the sector,” he said.

He added that the performance of the property index, which tracks the performance of 96 listed property firms, will largely be driven by corporate earnings.

With no upsides seen for the property market for the remainder of the year, property stocks look set for a lacklustre end to 2019.

After hitting a year high on Feb 21, Bursa Malaysia’s property index declined 22.1% as weak corporate earnings, waning demand and moderating housing prices adversely impacted investor sentiment.

According to Bloomberg Intelligence, the index is currently trading at a price-to-earnings ratio of 12.7 on a trailing basis and 11.1 times the estimated earnings of its members for the coming year.

The 96 members of the index have a combined market capitalisation of RM60.6 billion.

Listed property developers and companies in Malaysia will soon be announcing their results for the 3Q of the 2019 calendar year.

Some have posted their numbers. GuocoLand (M) Bhd, a property developer with landbanks in the Greater Kuala Lumpur and Melaka, was among the first to announce its results for the quarter ended Sept 30 this year.

The Hong Leong Group’s property arm saw its net loss widen to RM10 million from the RM1.22 million net loss recorded in the corresponding period in 2018, as revenue fell 37.9% over the same period to RM48.32 million.

The lower turnover was due to the lower sales of completed units managed by the company for the quarter.

The top listed property companies in Malaysia based on market capitalisation are currently IOI Properties Group Bhd, SP Setia Bhd, Sime Darby Property Bhd, UOA Development Bhd and Malaysian Resources Corp Bhd (MRCB).

IOI Properties, SP Setia and MRCB all noted weaker net profitability for their respective quarters.

UOA Development and Sime Darby Property, however, managed to buck the trend by posting growths in both revenue and net profit.

According to the National Property Information Centre, the property market is expected to remain resilient in the second half of 2019.

This will be supported by Malaysia’s strong GDP growth of 4.9% in 2Q and government-driven initiatives to support the housing market, it said.