Slowdown may have reached the bottom, says research house

PETALING JAYA: The slowdown in the local property sector could be reaching an inflection point based on promising economic data, according to Affin Hwang Capital.

The research house, in a report yesterday, said the local property sector could see a turnaround following three consecutive quarters of subdued transactions.

“After three quarters of contraction in the number of properties transacted, we believe this could almost be the bottom, as historically, over the past 10 years, the industry has only suffered at most, four quarters of negative growth (namely from the fourth quarter of 2012 until the third quarter of 2013).

“In the fourth quarter of 2015, the residential housing starts fell substantially to around 34,000 units, which may suggest that property developers are delaying launches and this may cap new incoming supply, and hence minimising the risk of a prolonged oversupply.”

Affin Hwang Capital also said it sees signs of an improving macro environment.

Malaysia’s real gross domestic product growth is estimated to soften from 4.6% year-on-year in the second half of 2015 to around 4.3% in the first half of 2016, before recovering to 4.7% in the second half, bringing full year growth of 4.6% in 2016.

“This is at the high end of the official Government forecast of 4% to 4.5%,” said the research house.

However, on a more positive note, Affin Hwang added private consumption had rebounded to 4.9% in the fourth quarter of 2015 from a trough of 4.1% in the third quarter of 2015.”

In addition, the research house also said payrolls continued to expand, with the average wages of 4.6% year-on-year in the fourth quarter of 2015 and 4% for 2015.

“High employment coupled with wage growth should be supportive of consumption activity, once consumer sentiment improves. As of the fourth quarter of 2015, unemployment rate remained healthy at 3.2%, while total employment has reach an all-time high of 13.9 million people.

“Labour force participation rate continues to hover not far below its record high at 68%,” which the research house believed would sustain the improvement of private consumption.”

Overall, Affin Hwang Capital said it is maintaining its “overweight” call on the local property sector.

“We believe the bottom is approaching and that further downside risk to share prices is limited.

“Property sales will be supported by healthy existing unbilled sales, as well as new launches,” it added.

The research house said key downside risk to its recommendation included a sharper-than-expected slowdown in the domestic property market, prolonged downturn in the property market and a sharp deterioration in property prices.