Tightening  measures  in  the  regional  property  market  seem  to  have paused.  The  Chinese  market  has  recently  seen  some  loosening  of policies to address the country’s ailing housing market. For Malaysia, all eyes  will  be  on  the  2015  Budget  announcement,  and  we  do  not  expect further  tightening.  Meanwhile,  Thai  developers’  presales  remain encouraging, with strong take-ups in a few new launches. 

Malaysia:  OVERWEIGHT. We  expect  investors’  interest  in  the  property sector to be tepid ahead of the 2015 Budget that will be tabled on 10 Oct. However,  we  encourage  investors  to  buy  on  weakness, as  we  do  not foresee  any  drastic  measures  to  be  imposed  on  the  property  sector  nor relaxation  of  policies  to  be  announced.  We  believe  the  set  of  cooling measures imposed in the 2014 Budget achieved its objective, and in  the meantime, we think it is too early to relax some  of the measures, as the Government  remains  under  pressure  to  contain  property  price  growth  in order  to  ensure  housing  affordability.  Affordable  housing  players  are  the safer bets. We like Tambun Indah (TILB MK, BUY, TP:MYR3.00), Matrix Concepts (MCH MK, BUY, TP: MYR3.93) and Hua Yang (HYB MK, BUY, TP: MYR2.74), as they are still the safer bets. 

Singapore:  OVERWEIGHT.  Keppel  Land  (KPLD  SP  NR)  and  Keppel REIT  (KREIT  SP  TP:  SGD1.66)  announced  the  long-awaiting  proposed acquisition for Marina Bay Financial Centre (MBFC)  Tower 3. We like the acquisition  as  it  is  yield  accretive  and  it  provides  income  stability  with longer weighted  average  lease expiry  (WALE) for its portfolio. Within  the REITs sector, our preference  remains in  commercial, retail and industrial sub-sectors,  given  their  more  favourable  demand-supply  dynamics.  We 
continue  to  like  Keppel  REIT  (KREIT  SP,  BUY,  TP:  SGD1.66),  Cache Logistics (CACHE SP, BUY, TP: SGD1.42) and Frasers Centrepoint Trust (FCT SP, BUY, TP: SGD2.22). 

Thailand:  OVERWEIGHT. Our  upgrade  on  the  Thai  property  sector  last month  is  reinforced  with  the  fast  recovery  in  property  presales  after  the military  coup.  The  recent  sales  performance  of  Asian  Property  (AP  TB, NEUTRAL,  TP:  THB8.00),  Ananda  (ANAN  TB,  BUY,  TP:  THB3.70)  and Supalai (SPALI TB, NEUTRAL, TP: THB27.00) is very encouraging. These three  developers  have  just  launched  their  condo  projects  near  the  mass transit  stations,  and  received  90%,  98.5%  and  70%  take-up.  This  hadprompted us to review our forecast and TP on Ananda. For stock picks, we continue to like Quality Houses (QH TB, BUY, TP: THB5.50)  and Pruksa (PS TB, BUY, TP: THB43.00). 

Indonesia: NEUTRAL.The potential cut in fuel subsidies,  and hence the resulting inflationary pressure, could  hurt  property demand  over the  near term.  However,  the  long-term  prospects  of  the  Indonesian  property developers remain attractive, backed by a large population. We continue to favour  Summarecon  Agung  (SMRA  IJ,  BUY,  TP:  IDR1,600)  and  Ciputra Surya (CTRS IJ, BUY, TP: IDR4,830). 

Hong  Kong:  NEUTRAL. China’s  Central  Government  has  loosened mortgage restrictions just recently. Purchasers of second homes can now be considered as first-time buyers. They can make down payments of 30% (from 60% or such buyers would not qualify for a housing loan previously). Banks  can  also  offer  some  30%  discount  on  benchmark  rates  for mortgages. Therefore, such policy relaxation shouldlift up share prices of property  stocks  over  the  short  term.  We  like  KWG  (1813  HK,  BUY,  TP: HKD7.60) and Sunac (1918 HK, BUY, TP: HKD7.60) as they should fare better, given their more solid fundamentals

Country: Malaysia 

Event: As expected, ahead of the 2015 Budget, which will be tabled on 10 Oct, the Real  Estate  and  Housing  Developers’  Association  (REHDA)  and  some developers  have  come  out  with  their  wish  list.  The  proposals  include:  i)  to allow stamp duty to be replaced by goods and services tax (GST), when the latter  kicks  in  from  1  Apr  2015;  and  ii) reinstate  developer  interest  bearing scheme (DIBS) for first-time home buyers. Some developers also hope that some policies can be removed given their sluggish property sales this year. 

Affected stock: The whole property sector in Malaysia. 

Comments: 
♦  We expect neither more drastic measures to be imposed on the property sector nor relaxation of policies in this coming budget. 
♦  We  believe  the  set  of  cooling  measures  imposed  in  2014  budget  has achieved  its  objective,  whereby  speculative  buying  has  already  been largely wiped out, given the disappointing sales inIskandar Malaysia  in particular. In the meantime, we think it is too early to relax some of the measures,  as  the  Government  remains  under  pressure  to  contain property price growth in order to ensure housing affordability. 
♦  We expect investors’ interest in the property sector to be tepid ahead of the  2015  Budget  announcement.  However,  we  encourage investors  to buy  on  weakness.  Affordable  housing  players  such  as Tambun  Indah,Matrix Concepts and Hua Yang are still the safer bets. 

Sector rating and outlook: OVERWEIGHT 

♦  We maintain our OVERWEIGHT sector rating for 4Q. Key drivers are still the:  i)  stronger  GDP  growth  for  2014;  ii)  upcoming  infrastructure developments;  iii)  front-loading  of  big-ticket  items  before  the implementation  of  GST  in  Apr  2015.   We  do  not  expect  any  further interest rate hike for the remainder of the year. 

Top BUYs: 
1.  IOI Properties Group (IOIPG MK, BUY, TP: MYR3.38) 
2.  Tambun Indah (TILB MK, BUY, TP: MYR3.00) 
3.  Matrix Concepts (MCH MK, BUY, TP: MYR3.93)

Country: Singapore

Event: 
Keppel  REIT  proposed  acquiring  a  prime  office  building  -  Marina  Bay Financial  Centre  (MBFC)  Tower  3  –  from  its  sponsor,  Keppel  Land  (KPLD SP, NR) for a price consideration of SGD1.25bn (SGD2,790 psf). 

Affected stock: All office REITs

Comments: 
♦  Considering that MBFC Tower 3 is one of the most prime office buildingswithin  the  Central  Business  District  (CBD),  we  think  that  the  price consideration of SGD2,790 psf is fairly valued as it lies within the range of recently-transacted prices of SGD2,181psf to SGD2,830psf.

♦  We  view  this  acquisition  as  a  compelling  one  as  it  extends  KREIT’s portfolio  WALE  to  9.2  years  from  6.4  years.  This  would  benefit unitholders with a stable income distribution in coming years.

♦  We maintain our BUY rating with a TP of SGD1.66. 

Sector rating and outlook: OVERWEIGHT 
♦  The REITs sector outperformed the broad market as it provides a total return of 10.3%, against the Strait Times Index’s total return of 6.8% on a YTD  basis.  Given  the  favourable  demand-supply  dynamics  within  subsectors such as commercial, retail and industrial, we continue to see an upcycle  trend  within  the  sector.  We  maintain  our  OVERWEIGHT recommendation. 

Top BUYs: 
1.  Keppel REIT (KREIT SP, BUY, TP: SGD1.66) 
2.  Cache Logistics (CACHE SP, BUY, TP: SGD1.42) 
3.  Frasers Centrepoint Trust (FCT SP, BUY, TP: SGD2.22)

Country: Indonesia

Event: Althoughthe newly-elected Indonesian president will face an  early popularity test, the Indonesian Government has hinted that it  may proceed with its plan to increase the subsidised fuel price ranging from  IDR500-IDR3,000 per liter in November. In the worst case scenario, should thefuel price hike reach  its upper range or at IDR3,000 per liter, the headline inflation may accelerate by 2.5%-2.9%  from  October’s  estimated  headline  inflation  of  4.5%  y-o-y.  Bank Indonesia  (BI)  has  signalled  that  the  current  BI  rate  of  7.5%  remains sufficiently high to counter a potential spike in inflation caused by fuel priceadjustment. However, we expect the BI rate to be increased by 25bps at theminimum, as a high BI rate might still be needed tocounter potential capital outflows triggered by the US interest rates hike, and also to prevent the surge in inflation rate. 

Affected stock: Overall, Indonesia’s property sector might experience a “short-term pain but long-term gain.” Consumers’ purchasing power might  be hurt for a while, and it  is  intuitive  that  consumers  would  hold  back  on  the  purchase  of  durable goods, including property. 

Comments: 
We  believe  Indonesia’s  property  sector  remains  attractive  in  the  long  term, backed by  a large  population that is facing  an unresolved  housing backlog, coupled  with  the  fact  that  RNAV  or  land  prices  in  Indonesia  are  resilient against economic conditions. 

Sector rating and outlook: NEUTRAL 
♦  We keep our sector’s thesis intact. We believe thatthe demand for midrange properties priced in between IDR500m to belowIDR2bn per unit to remain robust. 
♦  We expect changes in capital structure, with an increase in debt level, as new mortgage regulations may impact the collection period/cash inflow. We expect BI to keep the BI rate unchanged at 7.5% till the end of FY14.

Top BUYs: 
1.  Summarecon  Agung  (SMRA  IJ,  BUY,  TP:  IDR1,600),  given  the company’s strong pre-sales performance and future catalyst from its new projects in Bandung and the southern part of Greater Jakarta. 
2.  Ciputra Surya (CTRS IJ, BUY, TP: IDR4,830) for the second-tier pick.

Country: Thailand 

Event: End-September,  Asian  Property,  Ananda  and  Supalai  launched  new condominium  projects  in  areas  near  mass  transit  stations,  which  buyers warmly received. Valued at THB3.3bn, Aspire Sathorn Thapra, which belongs to  a  joint  venture  between  Asian  Property  and  Mitsubishi  Estate  (8802  JP, NR), was over 90% sold within two days. Supalai Elite @ Phayathai,  worth THB2bn, was 98.5% sold. Ananda  had  a soft launch for four  condominium projects worth a combined THB14.5bn and fetched presales of THB10bn. 

Affected stock: Asian Property, Ananda and Supalai

Comments:
♦  After the military coup in May, the pace of property presales has  been much  faster  than  expected.   All  major  developers  recorded  substantial presales in 3Q14. 
♦  9M14 presales of Asian Property and Supalai are likely to represent 70-75%  of  their  full-year  target.  We  maintain  our  earnings  forecasts  for Asian Property and Supalai. 
♦  Given  that  presales  of  its  four  newly-launched  condominiums  of THB10bn  were  better  than  its  forecast  of  THB6.8bn,  we  envision Ananda’s full-year presales coming 25-30% above itsfull-year target of THB11.66bn.  We  are  reviewing  our  earnings  forecast  and  TP  for Ananda. 

Sector rating & outlook: OVERWEIGHT 
♦  Growth drivers are: a doubling of GDP growth forecast to 4-5% in 2015, low  interest  rate  environment  with  a  policy  rate  at 2%  till  mid-2015, housing loans to grow to at least 10% in 2015 from  5-7% in 2014,  and the coming of the THB2.4trn nationwide infrastructure plan. 
♦  Upside  from  asset  monetisation,  which  will  likely resume  some  time  in 2H14. 
♦  Risks:  i) upcountry  demand  has yet  to fully recover, ii) high  household debt. 

Top BUYs:
1.  We recently  raised  Quality  Houses’  earnings  forecast  by  increasing  its turnover and margins. 2015F P/E of 11x is at its long-term mean level,with attractive dividend yields of 4-5%. 
2.  Despite its market leadership by revenue, presales and new  launches,Pruksa Real Estate currently trades at an 11x P/E, its long-term mean.

Country: Hong Kong 

Event: We  expect  home  sales  to  remain  weak  in  September  although  Local Governments are starting to loosen home tightening measures amid sluggish home sales and falling home prices. On 30 Sep, the People’s Bank of China(PBOC)  announced  positive  changes  in  home  mortgage  policies,  including relaxing the down payment requirement for the second home. 

Affected stock: Most listed developers 

Comments: 
♦  We expect some share price rebound in the next few days as PBOC’sdrastic mortgage relaxation should help improve market sentiment  to a certain extent. 
♦  We  believe  some  developers  like  KWG  and  Sunac,  which  have  solid fundamentals, would perform better amid this competitive market. Sector rating & outlook: NEUTRAL
♦  We  expect  the  oversupply  issue  to  worsen  in  2H  because  developers generally have 20-30% more saleable projects to launch in 2H vs 1H.

♦  After a strong share price rebound by Chinese  developers in June and July, valuations have become relatively less attractive. 
We still like developers that have better contracted sales growth, higher profit growth, lower net gearing and bargain valuation. 

Top BUYs: 
1.  KWG Property (1813 HK, BUY, TP: HKD7.60) 
2.  Sunac China Holdings (1918 HK, BUY, TP: HKD7.60)

Source: RHB