KUALA LUMPUR: Kenanga Investment Bank Research has maintained a neutral call on the property sector it’s nonetheless plagued with affordability, coverage and oversupply points.

“We feel the sector still lacks sustainable earnings visibility and growth to justify a re-rating in valuations,” it stated.

“While sales numbers reported by developers have generally been good year-to-date, we believe it would be increasingly hard to drive sales in FY22 given absence of home ownership campaign (HOC) discounts, and expected interest rate hikes on the back of a persistent oversupply issue,” Kenanga stated.

The analysis home stated year-to-date, gross sales by most builders underneath its protection have been robust with Eco World and Sunway already surpassing its preliminary gross sales targets whereas Sime Darby Property and SP Setia are prone to surpass gross sales targets by 4QFY21.

Kenanga believes the broad rationale behind the robust gross sales was because of the low rates of interest local weather coupled with the continuing HOC being carried out.

“Should our FY21 sales target be met by individual developers in 4QFY21 (Feb 2022 reporting), note that cumulative developers’ sales (of RM18.9bil) under our coverage would surpass pre-Covid levels mainly thanks to Eco World and Sunway’s outstanding performance,” it stated.

While FY21 gross sales have been encouraging, Kenanga is much less upbeat on FY22 gross sales prospects.

It stated that is primarily because of the absence of HOC, anticipated rate of interest hike because the economic system recovers, property cooling measures carried out in Singapore (in Dec 2021) and rising overhangs and unsold models underneath building throughout the residential market which might create a extra aggressive market.

“Therefore, we anticipate a drop in overall year-on-year sales by developers under our coverage to RM17.75bil,” Kenanga stated.

Should the HOC be prolonged, Kenanga is mildly constructive as this would supply upside in direction of its FY22E gross sales numbers.

However, Kenanag stated such tax vacation help as only a momentary measure whereas the continuing structural subject of oversupply nonetheless persists.

“Overall, the sector still remains fundamentally challenged from affordability, policy and oversupply standpoints.

“Despite the low valuations (in PBV terms), the entire sector still lacks sustainable earnings visibility and growth to justify a re-rating.

“That said, we feel that certain developers’ share price has undershot fair valuations and now provides an appealing risk-to-reward profile for bottom-fishing trading opportunities. Such names includes UEM Sunrise, Sunway and Sime Darby Property,” it stated.