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PROPERTY : Master Developers Continue To Reap
Property developers continued to shine in 1Q10 results. Results for most property developers came within expectations. Evidence of a recovering market led to several leading developers beating initial sales targets (eg: SP Setia and Mah Sing).
However, property management companies saw modest upside earnings growth (KLCCP). Moving forward, we reiterate master developers with strong project portfolios to remain as strong beneficiaries of a recovering economy.
Residential properties remained winners. In 2009, residential properties accounted 63% and 52% of the sector's total volume and value transaction, a -2.4% decline in volume but a +1.3% rise by value.
The demand surge for residential properties concurred to our view that investors tend to favor liquid assets with decent and proven yields in times of economic uncertainties. Lending a hand was also the enticing promotions by developers and the lower borrowing costs, with OPR at 2.0% then.
Nevertheless, other property classes did fairly well. Shop-offices grew +10.0%yoy in volume and +13.9% by value (RM'm) whilst Industrial developments experienced a tapered growth with +0.8%yoy growth in transactions but a +13.5% growth in value.
No surprises by purpose offices on the other hand as it experienced a decline amidst rising supply with a -29.8% volume transacted and a drop in take-up space at 84.9% from previously 85.2% in 2008. Moving into 3Q09, we expect the general trend to track 1H10 previous performance.
REITs gaining traction. The REIT establishment by Pelaburan Hartanah Bhd (PHB) as reported in the recent 10MP signals the market's growing confidence in the product type. The REIT segment is expecting to receive participation of 3 new REITs namely Sunway REIT, CapitaMalls Malaysia Trust and Qatar REIT, all expected to be listed by 2H10.
We expect this trend to further continue as property players unlock value from existing assets and preference by investors to hold diversified exposure with defensive earnings qualities in comparison to an outright ownership. At present the average yield for REITs in 2009 is at 8.50% in comparison to Singapore's 10.3%.
Future sector landscape brimming with prospect. Proposed key developments such as the development of the Malaysian Rubber board (FFRIM) land in Sg. Buloh, re-development of Kg.
Baru and Brickfields coupled with land parcel pursuits along Jln Ampang and Jln Stonor will drive future interest in the sector. Despite the lackluster economy last year, we note most property developers had actively replenished landbanks in 2009, given the discounted valuations and the need to capture strategic assets amidst fasten development and aggressive sales closure in 2009/10.
Looming risks….in the form of rising overnight policy rates thus raising borrowing costs, eventual withdrawal of enticing promotions by developers due to waning demand and igher operational expenses, inconsistent governmental legislation (i.e RPGT) waning foreign investors confidence while fundamental demand remains a suspect as indicators are signaling a slowdown in rental yields of both high-rise residential and offices, notably within KL city centre.
Remain 'positively cautious' on the sector. Shares prices of property counters have recovered +9.8% to date since hitting its low during May 2010. Despite the sector's brimming prospects, we believe this will come to an end upon (i) rising OPR rates and (ii) new sales taking a breather due to waning demand appetite as developers pace down promotions and concentrate development on hand.
We advocate investors to go for master developers with proven track record, strong fundamentals with growth potentials. We however advise investors to stray from property management companies and developers with high concentrate risk on a single key development.
Our top pick for the sector remains in Mah Sing (BUY; TP:RM1.94)
Property developers continued to shine in 1Q10 results. Results for most property developers came within expectations. Evidence of a recovering market led to several leading developers beating initial sales targets (eg: SP Setia and Mah Sing).
However, property management companies saw modest upside earnings growth (KLCCP). Moving forward, we reiterate master developers with strong project portfolios to remain as strong beneficiaries of a recovering economy.
Residential properties remained winners. In 2009, residential properties accounted 63% and 52% of the sector's total volume and value transaction, a -2.4% decline in volume but a +1.3% rise by value. The demand surge for residential properties concurred to our view that investors tend to favor liquid assets with decent and proven yields in times of economic uncertainties. Lending a hand was also the enticing promotions by developers and the lower borrowing costs, with OPR at 2.0% then.
Nevertheless, other property classes did fairly well. Shop-offices grew +10.0%yoy in volume and +13.9% by value (RM'm) whilst Industrial developments experienced a tapered growth with +0.8%yoy growth in transactions but a +13.5% growth in value.
No surprises by purpose offices on the other hand as it experienced a decline amidst rising supply with a -29.8% volume transacted and a drop in take-up space at 84.9% from previously 85.2% in 2008. Moving into 3Q09, we expect the general trend to track 1H10 previous performance.
REITs gaining traction. The REIT establishment by Pelaburan Hartanah Bhd (PHB) as reported in the recent 10MP signals the market's growing confidence in the product type. The REIT segment is expecting to receive participation of 3 new REITs namely Sunway REIT, CapitaMalls Malaysia Trust and Qatar REIT, all expected to be listed by 2H10.
We expect this trend to further continue as property players unlock value from existing assets and preference by investors to hold diversified exposure with defensive earnings qualities in comparison to an outright ownership. At present the average yield for REITs in 2009 is at 8.50% in comparison to Singapore's 10.3%.
Future sector landscape brimming with prospect. Proposed key developments such as the development of the Malaysian Rubber board (FFRIM) land in Sg. Buloh, re-development of Kg.
Baru and Brickfields coupled with land parcel pursuits along Jln Ampang and Jln Stonor will drive future interest in the sector. Despite the lackluster economy last year, we note most property developers had actively replenished landbanks in 2009, given the discounted valuations and the need to capture strategic assets amidst fasten development and aggressive sales closure in 2009/10.
Looming risks….in the form of rising overnight policy rates thus raising borrowing costs, eventual withdrawal of enticing promotions by developers due to waning demand and igher operational expenses, inconsistent governmental legislation (i.e RPGT) waning foreign investors confidence while fundamental demand remains a suspect as indicators are signaling a slowdown in rental yields of both high-rise residential and offices, notably within KL city centre.
Remain 'positively cautious' on the sector. Shares prices of property counters have recovered +9.8% to date since hitting its low during May 2010. Despite the sector's brimming prospects, we believe this will come to an end upon (i) rising OPR rates and (ii) new sales taking a breather due to waning demand appetite as developers pace down promotions and concentrate development on hand.
We advocate investors to go for master developers with proven track record, strong fundamentals with growth potentials. We however advise investors to stray from property management companies and developers with high concentrate risk on a single key development.
Our top pick for the sector remains in Mah Sing (BUY; TP:RM1.94)
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