Highlights

• Recently, cooling measures were announced in several states in Australia to curb speculation by foreign property buyers. New South Wales (capital city: Sydney) will be proposing a stamp duty surcharge of 4% and a 0.75% land tax i n its 21 June’s Budget following the move by Victorian and Queensland.

• The Victorian government (capital city: Melbourne) announced in its 2016-2017 Budget to impose additional stamp duty for foreign buyers (3% to 7%) effectively from 1 July 16 and triple its land tax surcharge for absentee landholders from 0.5% to 1.5% from 2017.

• In addition tightening measures are also introduced to the banking system. Press reported that Westpac, one of the big four banks in Australia has announced stopped lending money to foreign property investors and tightening the rules for Australian cit izens whose main source of income is derived from oversea after similar move announced by Commonwealth Bank.

Comments

• The cooling measures mentioned above should lead to moderation in demand for investment property with a consolidation of prices in Melbourne and Sydney. We expect buyers’ sentiment to be dampened in the short term.

• Under our universal of stock coverage, a few listed developers have exposure to the Australian market. SPSetia, UEMSunrise and Matrix have presence with majority projects concentrated in Melbourne which are subject to 7% stamp duty and 1.5% of land tax surcharge. In term of percentage of remaining total GDV, the exposure in Australia is relative small, with SPSetia (2.9%), Matrix (1.4%) and UEMSunrise (1%) (refer Fig 1).

• For new projects in pipeline, UEMSunrise is targeting to launch St Kilda by end of the year with GDV of RM750m (circa 38% of FY16’s total GDV launches). As such, any slowdown in Australia’s property market is expected to impact UEMSunrise on its new sales.

• In term of geographical profile of buyers, foreign buyers (non-Australians) accounted for a large percentage (ranging from 54% to 86%, refer Fig 2). The Chinese and Malaysian are the majority of the foreign buyers. We understand that majority of Malaysian buyers secure financing from local banks. That said, we would expect tightening of lending rules on foreigners to dampen sales growth.

Rating

NEUTRAL

• Negative bias given prolonged weakening of domestic consumer sentiment. Recent external policy headwinds represent further dampener on the sector.

Valuation

• Maintain Neutral on the sector. Top Picks: IOI Prop (BUY; TP: 2.77). We also have BUY call on Sunway (TP:3.72).

Source: Hong Leong Investment Bank Research - 17 Jun 2016