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Time to bloom
• Budget 2011 may not feature RPGT hike, LTV-cap already anticipated for third property onwards (minimal impact on sector)
• More positive newsflow on infrastructure and government land redevelopment projects
• Landlords of prime land with international development potential in KL will be biggest winners.
Top picks: SP Setia, Bolton, DNP Potential relief rally. We expect Budget 2011 to support the government’s Economic Transformation Program aimed at propelling Malaysia into a high income nation.
Higher real property gains tax (RPGT) and restrictive loan-to-value (LTV) caps will be deterrents to foreign direct investments and high net worth individuals.
While important to ensure a healthy property market, risk of a property bubble in Malaysia is relatively low as affordability remains high and the sharp price appreciation seen is mainly limited to landed residential in prime locations. LTV cap based on number of properties owned, location and/or value may be difficult to implement – banks will be better off managing risk on their own.
Policy tightening in regional markets saw initial negative knee-jerk reaction, but share prices rebounded to surpass pre-policy levels (Singapore, Hong Kong) while property prices largely held up (but sales volume fell). Demand should continue to be supported by Malaysia’s positive macro factors i.e. young population, urbanisation, shrinking household size, rising income, inflation hedging, and strengthening Ringgit.
Focus on the big picture. We see huge re-rating potential from KL’s transformation into a more livable and vibrant city. More details will likely be unveiled on the MRT, LRT extension, and government land redevelopment that could involve large private sector participation and FDIs (EPF, 1MDB, Qatar Investment Authority, Mubadala have committed to date). Sure winners will be current owners of large prime land with international development potential in KL (SP Setia, Bolton, DNP). While trickier to guess direct beneficiaries of government land redevelopment, GLCs/Bumi developers have an upper hand (MRCB, Boustead, Glomac, Bolton, SP Setia).
Under-owned & deep-value. The Malaysian property sector is one of the biggest laggard sectors post-financial crisis. Regional peers have fared much better, despite higher policy risk with property prices appreciating more steeply.
While the Malaysian property sector’s P/BV and P/RNAV multiples have recently inched up to 0.88x and 0.68x (slightly ahead of historical means of 0.77x, 0.61x, respectively), valuations are still a far cry from the 2-SD seen in 2004 and 2007, when re-rating was driven by strong sales momentum and positive policy changes - similar to what we are seeing now. At the peak, property stocks traded close to RNAV, while sector leader SP Setia fetched a 20% premium with foreign ownership hitting 56% (vs 22% currently).
• Budget 2011 may not feature RPGT hike, LTV-cap already anticipated for third property onwards (minimal impact on sector)
• More positive newsflow on infrastructure and government land redevelopment projects
• Landlords of prime land with international development potential in KL will be biggest winners.
Top picks: SP Setia, Bolton, DNP Potential relief rally. We expect Budget 2011 to support the government’s Economic Transformation Program aimed at propelling Malaysia into a high income nation.
Higher real property gains tax (RPGT) and restrictive loan-to-value (LTV) caps will be deterrents to foreign direct investments and high net worth individuals.
While important to ensure a healthy property market, risk of a property bubble in Malaysia is relatively low as affordability remains high and the sharp price appreciation seen is mainly limited to landed residential in prime locations. LTV cap based on number of properties owned, location and/or value may be difficult to implement – banks will be better off managing risk on their own.
Policy tightening in regional markets saw initial negative knee-jerk reaction, but share prices rebounded to surpass pre-policy levels (Singapore, Hong Kong) while property prices largely held up (but sales volume fell). Demand should continue to be supported by Malaysia’s positive macro factors i.e. young population, urbanisation, shrinking household size, rising income, inflation hedging, and strengthening Ringgit.
Focus on the big picture. We see huge re-rating potential from KL’s transformation into a more livable and vibrant city. More details will likely be unveiled on the MRT, LRT extension, and government land redevelopment that could involve large private sector participation and FDIs (EPF, 1MDB, Qatar Investment Authority, Mubadala have committed to date). Sure winners will be current owners of large prime land with international development potential in KL (SP Setia, Bolton, DNP). While trickier to guess direct beneficiaries of government land redevelopment, GLCs/Bumi developers have an upper hand (MRCB, Boustead, Glomac, Bolton, SP Setia).
Under-owned & deep-value. The Malaysian property sector is one of the biggest laggard sectors post-financial crisis. Regional peers have fared much better, despite higher policy risk with property prices appreciating more steeply.
While the Malaysian property sector’s P/BV and P/RNAV multiples have recently inched up to 0.88x and 0.68x (slightly ahead of historical means of 0.77x, 0.61x, respectively), valuations are still a far cry from the 2-SD seen in 2004 and 2007, when re-rating was driven by strong sales momentum and positive policy changes - similar to what we are seeing now. At the peak, property stocks traded close to RNAV, while sector leader SP Setia fetched a 20% premium with foreign ownership hitting 56% (vs 22% currently).
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