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Tuesday, January 7, 2014

Property sector poised for rebound


KUALA LUMPUR: Property sector is poised to rebound this year on more news flow and listings, lending strength to developers' valuations, said industry observers.

According to Kenanga Investment Research, developers' valuations are expected to strengthen, particularly when many large developers are trading close to trough valuations.

"We believe rebounds will be quick when news flows become more positive," it said in its research note released yesterday.

The research firm also believes that house prices will be maintained and property demand will resume once the "wait-and-see" game ends.

It said property developers' share price cycles also lean towards a more positive outlook, particularly as property sales as a proportion of the gross domestic product are already at a down-cycle.

"Property stock cycles are getting shorter over the last few years and of late, the uptrend has been beaten down severely.

"Once the market has adjusted to the cooling measures and when people realise that property prices will not come off, demand will return and largely driven by the need to hedge against future cost-push factors," it said.

However, the research firm said the first quarter of this year will remain challenging for the sector as investors are likely to stay on the sidelines, watching for indications of take-up rates in response to the tightening measures put in place, for example, like transparency measures and absence of DIBS.

"It will take some time for the market to digest these measures," it said.

Developers may push launches towards in the second quarter to second half of 2014 onwards, which could create a "pent-up" demand scenario, as seen post-2008 financial crisis.

"We expect the 'pent-up' demand scenario to materialise after the market has fully absorbed the negatives," said Kenanga Research.

It said strong news flows include new listings coming on stream, which should lend strength to valuations, such as Medini Iskandar, Eco World, IOI Properties and Iskandar Waterfront Holdings.

"To top it off, there could be more development of infrastructure projects, including awards for MRT Line 2 (Radial Line), report outcome of feasibility studies of the high-speed rail project, MRT Line 3 (Circle Line) and the Johor-Singapore RTS (end 2014)," it said.

Kenanga Research has maintained its "overweight" rating on the property sector following low valuations for large-cap developers.

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