Affordable-housing developers likely to perform better this year

Affordable-housing developers likely to perform better this year

PETALING JAYA, 26 JAN: Property developers with launches targeted at the middle-income segment are likely to perform better this year, said VPC Alliance (Malaysia) Sdn Bhd managing director James Wong.

“A lot of developers are moving away from the high-end segment and are developing more in the mid-income and affordable housing segment. If the developer has shifted towards these segments for their launches in 2016, it is likely that they should meet their sales targets. If they stick to high-end, they may not be able to hit their sales targets,” he told reporters.

“Having said that, most of the big boys have launches in all key areas including Greater KL, Penang and Johor. Of course, there are also niche developers in certain areas like Penang, Kedah and Johor,” Wong said.

According to Hong Leong Investment Bank (HLIB) Research, property companies last year underperformed the FBM KLCI as a result of cooling measures announced in Budget 2014.

“Consumer sentiment was further dampened with the interest rate hike in July 2014 and the Goods and Services Tax implementation in April 2015. In view of the cautious consumer sentiment, developers deferred major launches to the second half of 2015 (2H15),” it said in a report last Friday.

The property sector suffered further weakness in 2H15 with the weakening ringgit and poorer macro issues, namely the 1Malaysia Development Bhd controversy and the plunge in crude oil prices.

HLIB Research said the annual house price index (HPI) growth last year eased to 5.4% in the third quarter (3Q15) due to a series of cooling measures undertaken by the government to bring property prices under control.

It noted that Johor suffered the most significant moderation in 3Q15 with growth easing to 3% compared with 11.2% growth a year ago, mainly due to oversupply and growth normalisation after a spike during the 4Q12-1Q14 period.

“Given the reasons mentioned above, developers reduced their sales target by a range of 6-38% from the original targets set in early 2015. Notably, only Eco World Development Group Bhd and Matrix Concepts Holdings Bhd managed to achieve their revised sales targets. We attribute this to the strong brand name, product differentiation (Eco World) and strategy to focus on the affordable mass market (Matrix Concept),” it said.

For the financial years ending Oct 31, 2016 and 2017, Eco World’s sales target is RM4 billion and RM4.5 billion respectively. However, MIDF Research in a recent report projected lower sales figures of RM3.5 billion and RM4 billion respectively due to a less optimistic outlook on the sector.

Meanwhile, other developers such as IOI Properties Group Bhd and LBS Bina Group Sdn Bhd are confident of achieving their sales targets.

IOI Properties said it is confident of achieving its RM2 billion target for the financial year ending June 30, 2016 due to contribution from overseas property sales. To date, it has achieved more than 50% of its target.

LBS Bina is confident of achieving its RM1.2 billion sales goal this financial year ending Dec 31, 2016, citing a “strong portfolio of properties” as its growth driver. The group achieved RM1.029 billion in sales last year, exceeding its RM1 billion target.

“For the big boys, they will be able to ride it through because their unbilled sales are usually up to RM1 billion or more. Even if the market slows down this year they will be less affected than the smaller developers,” said Wong.

He added that in areas like Johor, developers who offer more affordable properties and smaller units will perform better than those in other segments.

In terms of transactions, Wong expects the volume to drop further in the coming months with up to 10% decline for the whole year while property values, which fell slightly last year by less than 5%, are also expected to fall further this year.

“We are expecting it to drop this year by another 5-10%. We are predicting it to recover probably in the second half of 2017,” he said.

CH Williams Talhar & Wong Sdn Bhd managing director Foo Gee Jen said developers who are 100% local with no overseas exposure will likely face challenges in meeting their sales targets.

“I’m doubtful because the overall sentiment is low and there are a lot of uncertainties. If you look at players who are 100% local, they should be cautious this year. I don’t think there will be delays in launches but developers may package it in a smaller scale while monitoring the market. There won’t be big launches,” he said.

While some quarters have opined that the government should relax some regulations on the property market, Foo expects regulations to remain status quo despite the soft property market.

“I believe the government is doing the right thing. The market needs a few cooling measures and what has been done so far is sound and reasonable. A correction definitely must happen.

“The only thing the government should do is focus on affordable homes and address the issue of affordability,” he said, adding that the government should also look into the rising cost of compliance and lack of coordination in the industry.

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