- New housing policies come into effect. According to The Star, the Negeri Sembilan (NS) government’s new housing policy is supposed to have come into effect on 6 June 2015. The new policy entails the following:- (i) Bumiputera quota raised from 30% to 50%; and (ii) 50% of new housing projects in the state are to consist of affordable homes. Half of the quota for affordable homes would be subject to a specific price range:- (i) 15% must be priced at or below RM80k; (ii) 15% at or below RM250k; and (iii) 20% at or below RM400k. For houses at RM80k and below, it must take the form of landed units with a minimum built-up of 20’x60’, and is not subject to Bumiputera discount. As for the remaining 50% of the affordable quota, the developers will be free to set their prices according to market forces. The Star report added that NS government’s decision to raise the Bumiputera quota to 50% takes into account the fact that Bumiputeras make up 70% of residents in the state. To further aid Bumiputera home ownership, a Bumiputera housing portal would be set up. The portal will also list unsold Bumiputera lots, although the exact mechanism is not immediately known at this juncture.

- Further dent to sentiments? The latest property rulings introduced by the NS government could trigger some imbalances in the property demand/supply dynamics within the state, in our view, as currently there is a lull in transactions for residential properties in Malaysia. Secondly, the higher requirements for affordable housing could potentially raise overall development cost for new housing projects in NS besides leading to further compression in margins. How the new measures will be executed is another area of concern. These uncertainties, if taken together, could prod developers to re-access their development prospects in NS amid rising land costs. At the same time, these new measures could also cast some degree of uncertainty on the 108,000ha Malaysia Vision Valley project (targeted GDV: between RM70bil and RM90bil) – covering Nilai, Seremban and Port Dickson – that was recently unveiled under the 11th Malaysia Plan.

- Muted impact on developers under our coverage: For developers within our property sector universe (or those with property interests), IJM Corp (Seremban 2/S2 Heights via IJM Land), Mah Sing Group (960-acre Seremban land acquired last August), Sime Darby (~70,000 acres in Nilai & Seremban: projects include Bandar Ainsdale, Chemara Hills, Planters Haven & Nilai Impian) and UEM Sunrise (Forest Heights: 50-50 JV with MCL Land Ltd) have exposure to development land in NS. However, the immediate impact is muted as the NS projects only account for ~1%-2% of their respective NAVs (Seremban land yet to be included in our NAV for Mah Sing). Furthermore, some of the developers have also shifted their development mix towards more affordable products to tide over the current weak property sentiment (e.g. 44% of Mah Sing’s launches for 2015 are priced below RM500k). Beyond our coverage, Matrix Concepts counts amongst other developers that are active in the NS property market scene via Bandar Seri Sendayan.

- Maintain OVERWEIGHT. While there may be some near-term headwinds coming up within the NS property market, transaction volumes in the state are still relatively small compared to the other key markets in the Klang Valley, Penang, and Johor. As such, we continue to retain our OVERWEIGHT call on the property sector. While we expect residential prices to continue moving sideways in 2015, a return of pent-up demand towards end-2015 – barring external shocks – is possible as the market is still awash with liquidity. Besides that, property cooling measures and Goods & Services Tax’s (GST) impact appears to have already been priced-in, given the steep 53% discount that property stocks within our coverage currently trade at vis-à-vis their respective NAVs.

- More expectations coming up with the PTMP. Furthermore, newsflow momentum on the property sector will be buoyed by the imminent award of the Project Delivery Partner (PDP) contract under the RM27bil Penang Transport Master Plan (PTMP). To-date, six contractors have been shortlisted for the PDP contract, with four of them local players (i.e. Gamuda, IJM, WCT, and Prasarana Malaysia Bhd). More importantly, the award of the PDP contract – due by month-end – could open up new prime tracts of state-owned development land in Penang, which the state government could utilise as payment-in-kind for the winning PDP bidder. Within the sector, Mah Sing is our top large-cap pick to leverage on for the next property up-cycle. Our other key BUY calls are MRCB, E&O, and Titijaya Land.

Source: AmeSecurities Research - 16 Jun 2015