Highlights

Our recent channel checks indicate that the authorities could potentially impose additional property curbs later this week which may include banning joint-promotion activities between developers and banks.

While the exact measures are yet to be revealed, we believe the curbs would entail the popular 5/95 financing scheme and developer interest bearing scheme (DIBS) currently being offered by developers and panel bankers.

Financial Impact

Negative for future sales in the primary market; the extent of damage varies with the degree of exposure to the high-rise segment for each individual developer.

Pros/Cons

Potential of impact… Given that DIBS is mainly for the highrise residential segment, impact would be best estimated via sampling.

Below 50% exposure… We estimate that developers within our coverage have circa 20-40% exposure to DIBS-financed high-rise residential projects, given that they tend to be diversified, with good exposure to the landed segment. Therefore, we believe the situation will be manageable for them.

Not good to be high… We believe that developers with high concentration to the high-end, high-rise developments such as E&O will be the most severely affected. However, we reckon that other major developers within our coverage would not be as badly affected given their exposure to this policy shift would comprised less than 50% of their sales.

Re-iterate neutral stance. Given the recent weakness in share prices of property stocks, as well as the negative impact should this potential policy shift transpire, we believe that near to mid-term performance of property stocks will likely remain capped at this juncture. We may re-visit our neutral stance once more clarity emerges on this possible policy shift.

Risks

Slower than expected economic growth; rise in NPL ratios due to loss of holding power by Malaysian home buyers.

Rating

NEUTRAL

Positives: Asset reflation theme remains intact; the affordable segment remains untapped; Johor market now experience strong demand following years of neglect and underperformance.

Negatives: Slowdown in demand for mid/high end segment; tighter restrictions on end-financing by banks.

Top Picks

KSL: TP RM2.73 (20% discount to RNAV), as we believe it offers a cheaper proxy to Johor compared to UEM Land (now trading above our RM3.16 RNAV valuation).

Source: Hong Leong Investment Bank Research - 24 Jun 2013