KUALA LUMPUR (Dec 7): Hong Leong Investment Bank (HLIB) Research has downgraded the property sector to “neutral”, and said it had turned less bullish on the sector, as it expects billings to normalise, while sales and launches should see a more moderate growth ahead.

In a sector update on Thursday, the research house said results for the third quarter ended Sept 30, 2023 came in good with three earnings beat, four in line, and just one below expectations.

“The sector's third-quarter aggregate earnings increased by 16.2% quarter-on-quarter and 19.6% year-on-year (y-o-y), while nine-month earnings increased by 5.1% y-o-y.

“Year to date, the sector has enjoyed a boost in earnings, from an acceleration in billings, as developers caught up with construction progress,” HLIB said.

The research house said much of the sector’s improvement was supply-side driven.

Firstly, it said developers enjoyed an earnings boost, due to higher progress billings from the acceleration in construction to catch up.

However, the research house said this effect should dissipate in 2024, on normalised levels of billings ahead.

Secondly, HLIB said the improvement in sales was partly due to some buyers shifting from the secondary market, as more new products became available in the primary market.

“We do not think property demand has changed much this year, given that the domestic economy has only seen moderate growth so far this year (HLIB's forecast: +3.8%).

“The moderate growth is expected to continue in 2024, with a projected 4% to 5% gross domestic product growth based on Bank Negara Malaysia’s estimate (HLIB's forecast: +4.8%).

“As such, we think developers are unlikely to raise launches significantly in 2024, as the market is not ready to absorb a higher number of launches,” it said.

Nonetheless, HLIB said there are a few selective names under its coverage with the potential to outperform the sector and market.

“Our top picks are Sunway Bhd, OSK Property Holdings Bhd, IOI Properties Group Bhd, and Sime Darby Property Bhd (SimeProp),” it said.