MIDF Research upgrades property sector, sees gradual improvement in 2H20 due to Penjana incentives

KUALA LUMPUR (July 28): MIDF Research has upgraded the property sector to "positive" (from "neutral") and said new property sales outlook will improve gradually in the second half of calendar year 2020 (2HCY20) due to the National Economic Recovery Plan (Penjana) incentives.

The research house noted the incentives include reintroduction of Home Ownership Campaign (HOC) for residential properties from RM300,000 to RM2.5 million from June 1, 2020 to Dec 31, 2021, uplifting the 70% margin of financing limit for the third housing loan onwards for properties valued at RM600,000 and above during the HOC period, and real property gains tax exemption from June 1, 2020 to Dec 31, 2021 for three residential properties per individual.

It expects the incentives to stimulate buying interest and support new property sales.

Besides, it said the work-from-home culture due to the Covid-19 pandemic may play a role in future home buyers' decision making as homebuyers may upgrade houses for bigger spaces and better lifestyle in accommodating to the new culture.

Moreover, MIDF said the aggressive overnight policy rate cuts this year by Bank Negara Malaysia to record low is positive to the sector as it improves homebuyer’s purchasing power by reducing loan instalment.

“We estimate the monthly instalment to reduce by about 14%, after 125 basis points cut for a RM500,000 loan with a loan repayment period of 30 years, which is quite significant in our view.

"Hence, we think the record low interest rate will partly help to alleviate homebuyers’ issue of securing home financing as the record low yield has boosted affordability of homebuyers,” it said in a note today.

The research house added most of the developers are trading at undemanding valuations with the recent drop in share prices.

“Notably, S P Setia Bhd, IOI Properties Bhd and UEM Sunrise Bhd are trading below -2 standard deviation of [their] five-year mean price-to-book while Eco World Development Group Bhd, Mah Sing Group Bhd, UOA Development Bhd and Eastern & Oriental Bhd are trading below -1 standard deviation of [their] five-year mean price-to-book.

“Hence, we think that the property counters are undervalued and should trade at higher valuation considering that the sector outlook is improving gradually,” it added.

Going forward, it advised investors to look forward to earnings and new property sales recovery in 2HCY20 which will be underpinned by Penjana incentives and record low interest rate.

It noted that the lower property inventory has also eased the concern of property overhang.

“Hence, we upgrade the property sector to 'positive' from 'neutral' with our top picks being S P Setia (‘buy’, TP: RM1.42) and Mah Sing (‘buy’ TP: 82 sen). We like S P Setia and Mah Sing as their products are more towards affordable to mid-range properties which cater for demand of owner-occupiers,” it said.

At the time of writing, shares in SP Setia were unchanged at 78 sen, valuing the group at RM3.18 billion, while shares in Mah Sing dipped half a sen or 0.73% to 68 sen, bringing the market capitalisation of the group to RM1.66 billion.