PublicInvest Research maintained Overweight on the property sector.

KUALA LUMPUR: The 25 basis points (bps) key interest rate cut by Bank Negara is positive for property sector as it will help bolster flagging demand, said PublicInvest Research.

The research house said on Thursday that it estimated that the 25bps cut would boost affordability as it will reduce mortgage amount by about 3.2%.

“That said, the overall impact depends on banks’ pricing of the risks that affects credit spreads andvmargin of financing (especially for new loans).

“All told, it is positive for property sector but weak demand currently is still a concern but sales recovery, which is expected in 2H2016 could provide a stronger rerating catalyst for the sector,” it said.

Bank Negara has cut its key interest rate to 3.00% from 3.25% previously, the first cut since February 2009.

PublicInvest Research maintained Overweight on the property sector.

Although demand is still weak due to concerns over the slowing economy and tightening credit, property developers are expected to register better sales compared to 1H2016 with more launches expected in the next few months.

“Also, most of the property developers’ earnings in the near term are also underpinned by healthy unbilled sales both locally and from overseas,” it said.
It added that property stocks were trading near undeserving distressed valuations albeit recovering somewhat to trade at -1SD below the mean at c.0.7 times discount to book value currently.

“As for the counters under our coverage, we maintain our recommendations except for Eastern and Oriental (E&O) which has moved close to our target price, and hence downgraded to Neutral,” it said.