WITHOUT DOUBT, 2014 will be a 'challenging' year for property owners

PETALING JAYA - The property development sector will face some challenges this year with new measures coming into effect but the volume of transactions is likely to be adequate in ensuring stability in the market, said Etiqa Insurance & Takaful head of research Chris Eng.

"Looking at fundamentals, the property market will still be okay this year, especially for landed properties. There have been measures to remove speculation but these do not really affect landed properties," he told SunBiz in an interview.

Some of the measures announced in Budget 2014 include the banning of Developer Interest Bearing Scheme (DIBS), increase in real property gains tax (RPGT) and the implementation of the Goods and Services Tax (GST) in April 2015.

Effective today, property developers will no longer be able to offer DIBS to buyers and the RPGT rate will be 30% for gains on properties sold within the first three years while disposals in the fourth and fifth years will be 20% and 15% each respectively.

Although no RPGT is imposed on Malaysians selling properties in the sixth year onwards, companies will be taxed at 5%.

For foreigners, the RPGT rate is 30% for properties sold within five years and 5% for disposals in the sixth and subsequent years. In addition, the minimum amount for property purchases by foreigners will be increased to RM1 million, with the exception of properties in the Medini zone of Iskandar Malaysia in Johor.

"Volume of transactions should be reasonable as people buy properties ahead of the GST implementation. The market may not be that great but there will be enough volume to ensure stability next year," said Eng.

Property stocks

Eng's top picks of property stocks in 2013 are IJM Land Bhd and Sunway Bhd from a fundamental point of view and UEM Sunrise Bhd from a trading point of view.

"IJM Land is very diversified, with projects in Penang, the Klang Valley and Johor. In the Klang Valley and Johor, its projects are mostly landed residential properties which will be able to withstand the various tightening measures introduced by the government and Bank Negara Malaysia (BNM)," he said.

"For Sunway, they have a big landbank including in Medini, which is exempted from some of the tightening measures. This should still give reasonable exposure to the group. Its construction arm is also doing well," he added.

As for UEM Sunrise, Eng expects a rebound in the first quarter of this year.

For 2014, he remains bullish on IJM Land and Sunway. He is also keeping an eye on Focal Aims Holdings Bhd and SBC Corp Bhd.

Focal Aims Holdings is now controlled by Eco World Development Holdings Bhd and Liew Tian Xiong, eldest son SP Setia Bhd's Tan Sri Liew Kee Sin while SBC Corp has partnered Suria Capital Holdings Bhd to develop a RM1.8 billion commercial centre in Kota Kinabalu, Sabah.

"We are comfortable with Focal Aims Holdings because they have a good team and it seems promising. They just need to work on their numbers, as they have not really gone out to meet investors yet.

"We are also looking at SBC Corp, which has partnered Suria Capital Holdings to develop a project in Sabah. SBC has been around for some time but they have remained low-key," he said.

Meanwhile, Inter-Pacific Research Sdn Bhd head of research Pong Teng Siew is more cautious on the property market and believes that the sector will face a tough year with many of the new measures coming into effect.

"The property market had a great run but it is always cyclical in nature. I'm cautious on the property sector and the government is aware of any political consequences of not doing enough," he said.

Pong said while private companies would look at profits and margins, it is no longer possible to do so on high volume thus the focus is on developments with higher margins. In addition, banks have tightened lending requirements.

"Thus, I prefer niche and small developers rather than those with huge landbanks and townships which is not so sustainable. Niche and small developers who can sell 10 units here and 20 units there, the market can absorb that," he added.

"Property developers with bigger scale developments and have reached a certain size will find it difficult to maintain the growth. Smaller developers on the other hand, can build up margins, they have room to grow into the high-end projects and maintain profit margins," said Pong.

His top picks for 2013 are Seremban-based Matrix Concept Holdings Bhd and Hua Yang Bhd whose focus is on the affordable housing segment.

"One stock that I like Matrix Concept Holdings because their balance sheet has a lot of properties acquired at very low valuations before. Regardless whether their sales is fabulous or so-so, profit margins are still high.

"Another one is Hua Yang, they had a great run. If you're talking about developers who made a big impact on the market in the last one to one-and-a-half years, it is Hua Yang. I prefer the affordable segment because although high-end projects are doing well, it is difficult to sustain," said Pong.

Commenting on companies diversifying into the property segment, he said these companies are latecomers and have entered the segment at the wrong time of the property cycle, especially with the many measures introduced by the government coming into effect next year.

"I would not recommend investors to look at these stocks as they have come in late in the property cycle. We saw a lot of newcomers last year, probably because other business segments have slowed down and these companies saw property as a comfortable business segment to enter or a quick way to raise profitsa," he said. - The Sundaily

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