Let market forces work: Analyst

"Market forces should be given a chance to work, as house prices will adjust to rising new supply and weaker demand as disposable income is dented by rising inflation."

Let market forces work: Analyst

PETALING JAYA (Oct 17, 2013): The government risks pushing house prices higher if it decides to raise real property gains tax (RPGT) and stamp duty as sellers would try to pass on incremental costs to buyers and delay disposal, leading to even tighter supply, said HwangDBS Vickers Research Sdn Bhd analyst Yee Mei Hui.

“Market forces should be given a chance to work, as house prices will adjust to rising new supply and weaker demand as disposable income is dented by rising inflation,” she said in a report yesterday.

It said although the government needs to be seen as actively reining in property speculation, raising RPGT has had relatively short-lived impact in the past and could spur sellers to postpone disposals and developers to hold back launches in view of weaker sentiment.

Raising stamp duty may have a bigger impact, but sellers will also try to pass on the incremental costs to buyers.
Yee believes that first and second home buyers should be spared from any tightening measures, in line with government’s aim to promote home ownership and reducing the loan-to-value cap for a second property would affect genuine upgraders, who may find it challenging to pay a higher down payment while waiting to sell their existing properties.

“Finally, what would kill Malaysia’s property market, in our view, is if the government emulates Singapore’s severe measures of imposing upfront stamp duty for buyers and sellers’ stamp duty (irrespective of whether there was a profit).
“Such heavy-handed measures will not only drag down the already softer secondary market, but also turn away foreign investors (already small compared with other markets in the region),” she added.

Yee has suggested several targeted measures such as curbing primary market incentives such as the Developer Interest Bearing Scheme (DIBS), easing financing for the genuine secondary market, accelerating the roll-out of affordable housing scheme and segmentalising the market.

She said the government should curb primary market incentives like DIBS which are built into selling prices and enforce stricter bank valuation for new launches, while easing financing for the secondary market will help widen housing supply base and improve vibrancy of the property market.

“It should also accelerate the roll-out of affordable housing scheme by roping in private sector participation via transparent incentives, emulate Singapore Housing Development Board’s comprehensive policies but impose location-specific price caps and impose strict enforcement of one unit per owner,” she said.

The government should also create an “International-Class Condominium” segment to attract foreign high net worth individuals and investments.

Yee also noted that the potentially tight supply of building materials and foreign labour in 2014 and 2015, as construction activity peaks for both property and infrastructure projects, could dampen developers’ margins and lead to expensive penalty for late delivery.

“This could delay launches and push up property prices further. There is no property bubble, but we fear an oversupply of Kuala Lumpur office space, hybrid high-rise units and Iskandar Malaysia high-end condominiums,” she said.

Meanwhile, Yee deems developers with tight cash flows such as Hua Yang Bhd, Magna Prima Bhd and Tropicana Corp Bhd, and those with multiple projects under construction like Mah Sing Group Bhd and SP Setia Bhd as well as those with high land costs and large exposure to speculators namely Mah Sing, UOA Development Bhd and YTL Land, as the most vulnerable.

However, township developers that focus on affordable housing, conglomerates and investment property owners should be more insulated including real estate investment trusts, KLCC Property Holdings Bhd, IGB Corp Bhd, Wing Tai Malaysia Bhd, Sunway Group, MKH Bhd and SHL Consolidated Bhd.

“We expect house prices to continue to rise but at a more modest 3% to 5% per year over the next two to three years as new supply trickles in and cheap liquidity dissipates against weakening demand. First quarter of 2013 house price growth had already moderated to 6% compared with 12% the year before,” she said.

HwangDBS Vickers’ top picks for the sector are Pavilion REIT, KLCC Property, Wing Tai Malaysia and Eastern & Oriental Bhd.

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