Property downgraded to ‘neutral’ after a good performance

THE property sector has emerged as one of the better performing sectors but it may not be able to sustain the momentum in the coming months.

“As we expect billings to normalize while sales and launches should see a more moderate growth ahead, we thus turn less bullish on the sector and downgrade our rating to ‘Neutral’ from ‘Overweight’,” according to HLIB Research in a note released today (Dec 7).

It noted that the property sector stood out this year as one of the sectors that performed well as seen from the improvement in YTD aggregate numbers in earnings (+5.1% YoY), sales (+21.4% YoY) and launches (+1.17x YoY).

Firstly, it said the improvement in earnings were mainly a result of acceleration in billings recognition as labour shortage conditions improved this year, and higher sales. Secondly, the improvement in sales was mainly due to higher new launches YTD.

“Delving a bit deeper on the outperformance of the sector, we would notice that much of the sector’s improvement was supply-side driven,” it said.

It noted that developers enjoyed an earnings boost due to higher progress billings from acceleration in construction to catch up. However, the effect should dissipate in 2024 as it expected a normalised level of billings ahead.

It also added that the improvement in sales was partly due to some buyers shifting from secondary to primary market as more new products are available in the primary market.

“We do not think property demand has changed much this year given that the domestic economy has only seen moderate growth so far this year (HLIBf: +3.8%). The moderate growth is expected to continue in 2024 with a projected 4-5% GDP growth based on BNM’s estimate (HLIBf: +4.8%).

“As such, we think developers are unlikely to raise their launches significantly in 2024 as the market is not ready to absorb the higher amount of launches,” it said.

Nonetheless, it said there were a few selective names under its coverage that had the potential to outperform the sector and market, listing its top picks as Sunway Bhd, OSK Holdings Bhd, IOI Properties Group Bhd and Sime Darby Property Bhd. – TMR