With regards to the recent increase in innovative financing schemes, we believe this does not solve the fundamental issue as this will not only further push house prices up, but also encourage home buyers to undertake mortgages beyond their affordable means. An interesting perspective highlighted was the positives of renting as opposed to owning a home. When compared to developed countries, Malaysia has a lower household home rental proportion, despite the numerous benefits. We maintain our forecasts and NEUTRAL stance on the sector despite having 5 BUY calls out of the 8 companies under our coverage, due to the absence of near-term catalysts to warrant a re-rating in our sector call.

We attended the HiHOME Property Conference 2019 on 25 Jul 2019 with the following key takeaways.

The affordability issue. Dr Suraya Ismail from Khazanah Research Institute, highlighted the affordability issues faced by the mass population of Malaysia, measured through 3 methods commonly used, namely the: i) Median Multiple; ii) Housing Cost Burden; and iii) Residual Income. House prices in Malaysia appear to be categorised as unaffordable and have been worsening over the past years as the growth of median house prices surpassed the growth of annual median income. For a more detailed analysis of the affordability landscape of houses in Malaysia, kindly refer to our recent 2H19 Property Outlook Report (link). With regards to the recent increase in innovative financing schemes to support the sluggish market, we believe it does not solve the fundamental issue as this will not only further push house prices up, but also encourage home buyers to undertake mortgages beyond their affordable means.

Renting as the way to go? An interesting perspective highlighted by another speaker was the positives of renting as opposed to owning a home. When compared to developed countries, Malaysia has a lower household home rental proportion of 33% (Germany: 49%, US: 42%, UK 38%) which could be attributed to the stigma of renting a home which is still apparent in Malaysia, despite the numerous benefits (e.g. lower monthly commitment and better flexibility). An example given was using a house priced at RM900k in SS2, PJ, whereby renting the house will cost c.RM2k/month vis- à-vis monthly instalments amounting to c.RM3.7k/month. Note that this has not taken into account the huge down payment required when purchasing a house, maintenance cost, renovation cost, etc. By renting a home, households will also have the mobility to reside in different locations over the years and additional time to research on potential neighbourhoods before committing to a mortgage.

Maintain NEUTRAL. We maintain our forecasts and NEUTRAL stance on the sector despite having 5 BUY calls out of the 8 companies under our coverage, due to the absence of near-term catalysts to warrant a re-rating in our sector call. However, we do not rule out a possible mild recovery of interest towards the sector given the trough valuations (coverage universe P/B at 0.75x or -2SD).

Top Picks. We continue to like Sunway (BUY, TP: RM2.18) as an underappreciated property-construction conglomerate with mature investment properties, growing trading and quarry division and potential listing of healthcare business. MB World (BUY, TP: RM2.75) is our small-cap pick given its first-mover advantage to capture the spillover effect from the growth in the RAPID project in Pengerang and Desaru Coast.

Source: Hong Leong Investment Bank Research - 29 July 2019