The going gets tough for property sector
KUALA LUMPUR: Weak fundamentals, deteriorating economic conditions and evaporating consumer confidence – in the wake of the Covid-19 spillover effects and oil price collapse – all but spell doom for property players as can be seen by the Bursa Malaysia Property Index (KLPRP).
Kenanga Investment Bank Bhd (Kenanga Research) recapped that the KLPRP Index has lost 37.7 per cent of its value year to date compared with the FBM KLCI’s drop of 18 per cent.
“To be sure, the supply-demand imbalance in the property market is expected to persist,” it said in a sectoral. “Essentially, the high inventory levels – comprising existing stocks and incoming supply of unsold units still under construction – will remain elevated in the foreseeable future.
“On the other hand, demand will likely weaken in the midst of the economic fallouts arising from Covid-19 and oil price slump.
“Hence, property developers will find it increasingly challenging to clear their inventory of completed properties and achieve new property sales targets this year.”
Amidst the falling market sentiment, as valuations diverge from their norms during crisis time, the research firm looked at what happened during the 2008/2009 Global Financial Crisis (GFC).
“The property sector was then trading between minus 1.5SD and minus one SD below the historical price-to-book value mean for approximately 11 months,” it calculated. “In comparison, the KLPRP Index is currently trading at minud 2.5SD below its historical mean, suggesting that a relief rebound may be in the offing.
“Following the intense selloff, we reckon most property stocks have been bashed down to distressed levels already.”
Just like in the aftermath of past crises, these oversold stocks could see a relief rebound when valuations revert to normalcy eventually. On valuation grounds, Kenanga research’s tactical sector call remained overweight for property.