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PETALING JAYA: Property developers have been playing in a rather bumpy environment in recent years with sectoral issues plaguing the market even before the coronavirus (Covid-19) pandemic hit.
The glut has only been on the rise and while many expect the low interest rate environment to stimulate the absorption rate, experts would not agree judging by how the pandemic trampled the economy.
The market just saw EMU Sunrise Bhd
proposing a merger with Eco World Development Group Bhd on Monday, which came about a year after talks about the deal emerged in November last year.
On whether there would be more real estate developer mergers on the horizon or consolidation in the market, Lum Joe Shen, an analyst at Kenanga Research, said it was unlikely for now.
“Property developers still have unbilled sales to support them. Only if they run into a downside, such as poor sales and stagnant debt in subsequent years, may they want to consolidate.
For developers owned by GLC (companies linked to the government), they may want to do it, to take the opportunity to make their operations more agile and to endure them if the prospects are better, “he said.
Public Investment Bank Research opined that the proposed merger between UEM Sunrise and Eco World was not surprising given the current challenging conditions in the housing market. adding that the consolidation of the sector is ready to happen to strengthen the positioning in the market.
Meanwhile, Lum also downgraded the real estate sector from “outperforming” to “neutral” in its sector update report yesterday, as Kenanga shifted its investment narrative to the sector’s challenged fundamentals rather than a bounce game. tactic based on previously depressed valuations.
“Previously, our so-called ‘outperform’ tactic was based on the fact that the sharp drop in equity prices and valuations in March would surely see a relief rally.
“While we witnessed a rebound, the effectiveness of a relief rally diminishes over time and the market’s focus will once again gravitate to the fundamentals of the sector, which is still plagued by structural problems,” Lum said.
It added that long-standing issues such as the lack of automatic release mechanisms for unsold bumiputra lots in certain states, capital contribution and compliance costs, high land conversion premiums, social housing obligations, and threshold of foreign buyers require cooperation between the federal and state governments and developers that must be remedied.
Lum also noted that lower interest rates and incentives will help support property sales, but are unlikely to increase them.
When the official overnight interest rate fell dramatically from 3.5% to 2% between 2008 and 2009, property sales did not rebound immediately during the year.
“It goes without saying that the weak economic environment that shattered confidence and outlook greatly overshadowed the advantages of the lower funding rate at the time. The developers in our universe have generally reduced the number of releases and sales targets this time around.
“None of them are optimistic enough to increase launches or targets despite lax monetary and fiscal policies,” he said.
UOB Kay Hian Research said that the consolidation between UEM Sunrise and Eco World will bring little benefit to the sector as a whole, as property sales will remain weak amid fears of a lockdown stemming from the resurgence of Covid-19 cases. and with the excess supply of serviced apartments. at alarming levels.
“In 2017, when SP Setia Bhd took over I&P Group, the fundamentals of the sector were unchanged. Overall sales and take-up rates were not encouraging, while excess ownership remained high, ”said the research house.
UOB Kay Hian emphasized that property sales remain a concern and that it will be slow despite the reintroduction of the Home Ownership Campaign due to moderate global economic growth that may raise overall unemployment rates.
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