Demand for properties still sound

RAM Rating Services Bhd has rated the local retail and residential property market in Malaysia as stable, saying that there are other factors which are still supporting demand for properties despite concerns that a price bubble could be inflating.

Its general manager for financial institution and public finance ratings, Foo Su Yin, said that a sector with a “stable” rating did not mean that the rating agency did not have concerns on the sector per se, but that the rating was given after analysing and taking into account all other factors as well.

“For instance, in residential property, despite talk of the bubble at the higher end, we still see demand there. This is because of other macro trends such as demographics that Malaysia has as we have a young population base,” she said.

“A large percentage of our population is actually below 44 years old, so there will still be demand for houses,” she opined.

Another factor which she said would support the demand is the healthy employment situation, as the country is close to full employment.

The third factor which she thinks would support higher property purchases is increased rural to urban migration, in line with trends in developing countries around the world.

To a question on whether the property bubble was a real threat to the Malaysian economy, she said: “I think there are concerns looking at the household debt and the prices going up. But for residential property, we rate it for the whole of Malaysia and not just at a specific location”.

“There are concerns that there could be bubbles, but this would be location specific. If the location is good, there will be demand there. If the location is not good, there will not be demand for the particular project,” she said.

“But all things considered, we believe that the overall demand situation is still sufficient at this point in time. However, if property developers continue to indiscriminately launch projects that are not in viable locations, then that would definitely exacerbate the situation,” she added.

Wong Wei Sum, property analyst at Maybank Investment Bank, said that she expects demand and prices of properties to be firm in the short to medium term.

“Properties, especially near mass rail transit (MRT) areas, should be supported. Prices are also being supported by the projected healthy growth of the economy for this year,” she told The Edge Financial Daily.

She recommends investors to buy her top property stock pick at the moment — Glomac Bhd — adding that there is “strong upside potential” for the stock with the recent upgraded target price of RM2.38, which was pegged at a 20% discount to its revised net asset value of RM2.97.

“Glomac will very likely beat its FY11 ending April 30 sales target of RM500 million thanks to a strong take-up at Glomac Damansara, lifting unbilled sales above the RM1 billion mark, (which is) a new record,” she wrote in a report recently.

The stock added one sen to RM1.70 at the close yesterday, with 118,000 shares changing hands.

Maybank’s other property stock picks include S P Setia Bhd and Gamuda Bhd. - by Daniel Khoo of theedgemalaysia.com