‘ROUGH SEAS AHEAD FOR PROPERTY DEVELOPERS’

Kenanga IB sees subdued sentiment due to absence of catalysts and oversupply, affordability issues

IT is still rough seas ahead for property developers, even with the implementation of zero-rated Goods and Services Tax (GST). Kenanga Investment Bank Bhd (Kenanga IB) said outlook for the property sector remained unexciting following weak results in the first quarter ended March 31.

“It was a weak reporting season for developers as margin issues plagued earnings, resulting in a fourth consecutive quarter of downward earnings revisions.

“We saw more misses in headline sales, although the big-boys were on track, largely due to bigger marketing presence and wider market reach,” said the firm.

Kenanga IB noted that sentiment for the sector was likely to remain subdued due to an absence of catalysts, an oversupply and affordability issues, adding that policy clarity would likely be known only in the 2019 Budget.

The zero-rated GST, contrary to popular beliefs, will not be a game changer in the segment.

“The reduction of GST to zero will offer some relief and allow developers to pass on savings to buyers to improve affordability.

“However, since most product pipelines are largely residential and GST savings will only be felt in the newer launches, impact on margins may not be immediately significant,” it said.

“We do not think this will be seen as a major catalyst for the sector. It has been noted that developers are giving discounts, rebates or freebies and are using agents to clear inventories, which will have negative implications on margins.

“Nonetheless, it is better for developers to clear inventories to unlock capital rather than retain margins at this juncture.”