KUALA LUMPUR: Optimism from certain quarters about a recovery in the property market during the second half this year is likely to be misplaced as sentiment and fundamentals remain weak, said AllianceDBS Research in a note today.

The research house said that 2016 could be an even more challenging year for the sector in light of the tepid economic outlook and persistently poor consumer sentiment.

“Additionally, the accelerating incoming supply over the next two years could further dampen the weak sentiment as buyers may continue to adopt a wait-and-see attitude in anticipation of lower selling prices,” it said.

While it expects overall property sales to decline this year, developers have begun adjusting their product mix by incorporating more affordable homes in their launch pipelines given that demand for this segment remains strong.

Absolute property prices have been kept low as more smaller built-up units are being offered. This is mainly to address the affordability issue as buyers have been priced out by skyrocketing prices, AllianceDBS noted.

One prominent concern is the difficulties faced by developers in converting their initial high bookings to sales because of stricter lending policies as banks turn cautious towards the property sector despite the keen interest shown by potential homebuyers.

“Maintaining prices at affordable levels remains the key sales driver to secure bank loan financing whose approval appears to be more stringent now. There have been delays in launches last year as developers adjust to the softer demand, but we believe there is likely to be more launches this year to maintain their earnings visibility,” it said.

Among its top picks for the sector include MKH Bhd and Matrix Concepts Holdings Bhd due to their large exposure to affordable homes within township developments.

The companies' low land cost advantage in key flagship projects will allow strong pricing flexibility and at the same time ensure healthy margins, the research house said.