Above market expectations, but slightly below ours. The GST implementation (6% GST from 1-Apr-15), speculation cooling measures such as RPGT hikes and subsidies for PR1MA housing came as no surprise to us as these measures were already anticipated. Although market consensus was expecting similar measures, it was more pessimistic with anticipation of removal of DIBS and higher floor prices of RM1m/unit (from RM500k/unit) for foreign buyers, as well as, potentially lower LTVs and stamp duty hikes. Positively, the measures announced were less severe than market expectations with no stamp duty hikes and further LTV caps. Nevertheless, it is slightly below our expectation as we did not see the need for the cessation of DIBS. Historically, Budget measures on the property sector had only seen one drastic fiscal measure and one monetary measure within a year. So this is highly unusual. However, we reckon this is a smart move on the government’s part as they anticipate a pre-GST panic buying trend. So ahead of it, they have introduced harsher measures to deter speculators from taking advantage of this trend, particularly foreigners with currency advantage. This does imply that future demand could be stronger than expected and we think that this factor will still keep property sales buoyant in view of this future cost-push-inflation factor.

RPGT hikes were more severe than expected, although we think this will have the least effect on new launches, i.e. developers. It will also weed out more speculators in the secondary market, particular those taking advantage of the discounted prices that the secondary market compared to the primary market. However, on the run-up to the Budget, we believe that RPGT hikes have been well factored-in into developers’ share prices.

Cessation of DIBS was expected by market. Although we were surprised by this measure since Bank Negara typically implements one measure at a time, the market is likely to have also factored in this measure. Notably, most developers under our coverage (except for UOA) have 0%-35% exposure to DIBS. Furthermore, we gather that developers will likely offer more incentives in the absence of DIBS. We do not deny there may be some pressure on developers with high exposures to DIBS in the short-term. Nonetheless, we do expect demand to resume in light of inflationary factors (e.g. GST, subsidy rationalization) thereafter. We also opine that this measure will weed our smaller developers that are dependent on DIBS, which will, ironically, benefit larger developers.

Raising floor prices to RM1m/unit for foreign buyers from RM500k/unit. Overall, we do not expect a significant impact to demand as many foreign buyers tend to aim for higher-end properties above RM1m/unit. Markets that may be affected are those smaller units in Johor i.e. selected projects. However, we understand developers targeting foreigners typically launch projects priced above RM1m/unit so this will not be overly detrimental. For projects targeted at locals, sales should not be significantly affected as most Johor projects have a 30% cap on foreign buyers. The RPGT hikes for foreigners were the most severe at 30% on the 1st to 5th year of disposal and this came as a negative surprise. However, this is less severe than Singapore’s measures where Singapore taxes on entry (on total house value) and holding costs, while Malaysia only taxes on exit points, i.e. capital gains.

Healthier measures for more sustainable demand. All in, we believe the measures introduced is healthy for the overall property sector health as property prices has surged significantly over the last few years. This has priced-out many buyers, particularly genuine home buyers (e.g. first home buyers and upgraders). We do not think property prices will correct but rather stabilize, allowing a greater pool of buyers to come on stream, which will ensure sustainable future demand. Developers will have to rethink their strategies (e.g. larger units, more incentives), as well as, aim for more affordable housing markets to sustain their sales. Those that will prevail are developers with sizeable affordable housing, industrial properties and geographic diversifications (e.g. all major Malaysian states, overseas projects).

Buy on Weakness, particularly larger cap developers, which are trading at near trough valuations and have retraced back most of their YTD gains from the post-GE highs. Expect a slight knee-jerk reaction to property developers’ share prices, followed by range-bound trading movements for a couple of weeks. After which, we expect developers to gain momentum in share prices due to the anticipation of pre-GST panic buying.

MAINTAIN OVERWEIGHT on developers. We believe UOA, UEMSUNRISE and MAHSING may experience softer sales growth due to the cooling measures. Ahead of any potential downside earnings potentials, we have: (i) trim our TP but maintain our CALL for UEMSUNRISE (OP; TP: RM3.05), (ii) trim our TP and CALL for UOA (MP; TP: RM2.30), (iii) but maintain CALL/TP for MAHSING (OP: TP: RM2.56) as it is trading at trough Fwd PER and Fwd PBV valuations. We have maintained our calls/TPs on the rest; IJMLAND (OP; TP: RM3.60), CRESCENDO (OP: TP: RM4.00), HUAYANG (OP; TP: RM2.91), SCIENTEX (OP; TP: RM6.28), SPSETIA (MP; TP: RM3.60) and HUNZA (MP; TP: RM2.40). As a result, IJMLAND is now our TOP PICK for 4Q13, replacing UEMSUNRISE. 

Source: Kenanga