Tricky outlook for 2015

The year 2015 could very well turn out to be a similar to 2014 in terms of property transactions, which has been dubbed “a dull year” by a CIMB Research report. CIMB Head of Research Terence Wong said that the research arm believes the pick-up in buying momen­tum will continue in 1Q15. He said the developers faced a slow 1H14 due to the 2014 Budget cooling measures but property sales started to pick in 2H14 as buyers’ confidence was re­stored, coupled with the ex­pectation of a price hike af­ter the Goods and Services Tax (GST) implementation.

However, he said, buyers will likely adopt a wait-and-see attitude for six to nine months after 1Q15, which is in line with the typical consumer behaviour experienced in most coun­tries have implemented GST.

“Based on the experience of several countries that im­plemented GST earlier, there was a pick-up in retail sales ahead of GST, particu­larly three to six months be­fore the implementation, and retail sales eased in the six months after GST before rebounding in the nine to 12 months period after GST,” Wong said.

He said if Malaysia goes through the same pattern, property sales will be simi­lar to retail sales and 2H15 will be a trying period for developers. The report said that the fundamentals for residen­tial properties remain healthy with the affordabil­ity index still near its best-ever levels, but the market will continue to be less san­guine about commercial properties where occupan­cy and rental rates remain depressed for office space and hotels.

“With many mega pro­jects being planned, the outlook for commercial property will remain chal­lenging,” Wong said.

The report also said that developers will generally be cautious about 2015 due to the uncertainties from the implementation of GST. “Developers that found it difficult in 2014 will have to contend with another diffi­cult year in 2015,” Wong said.

According to Kenanga Research, the research arm of K&N Kenanga Holdings Bhd, more property launch­es are expected in the post- Budget 2015 time-frame – 4Q14 and 1Q15 as the months running up to Budget-2015 was “too qui­et”.

“However, developers are more cautious and we ob­served them fine-tuning their product offerings and breaking up launch sizes into more digestible sizes and prices,” it stated.

It said that developers are also buffering a longer lead-time in terms of conversion of bookings to SPA sales and are embarking on more ad­vanced buyers’ credit screening before even book­ings can be made.

“In essence, developers are going to have to work very much harder,” the re­port said.

The report also conveyed that the property market is expected to see a slower year ahead with developers registering flat-to-declining property sales in FY15 due to the wait-and-see ap­proach by buyers before the impending GST, tighter lending environment by banks due to asset quality issues, and potential inter­est rate hike closer towards the end of 2H15 that could further hamper property sales in 2015.

Based on observations, Kenanga Research said on the one to two years “mini cycle” of Kuala Lumpur Property Index (KLPI) with­in the broad 10-year cycle over the last 20 years, the KLPI annual return in 2015 is due to experience under­performance in the FBM­KLCI annual returns and is likely show negative annual returns.

The report said that the better part of 1Q15 will be uninspiring for developers as more risks are seen while fresh catalysts are lacking. The 11MP announcement and awards of MRT2 con­tracts are unlikely to stir the property market significant­ly.

“Johor and Klang Valley developers may be getting the advantages from the an­nouncement of the KL-Sin­gapore High-Speed-Rail (HSR) or even a potential Rapid Transit System in Jo­hor,” it said.

The research arm predict­ed that landbankingactivi­ties will increase among developers. It says ironically, “time for landbanking” by devel­opers usually arises during challenging property cycles as land prices may stabilise and present acquisition op­portunities.

“Over the last three years, landbanking has been tough due to rising prices. Given that the House Price Index growth rate has mod­erated, we reckon that land owners will become more realistic with asking pric­es,” the report said. However, it said, the physical market will take time to digest market condi­tions as it is believed that more landbanking news flow will unfold towards 2HCY15.