Hong Leong Investment Bank Bhd (HLIB Research) anticipates an uneven recovery among real estate developers in 2022 and retains its 'netural' rating on the property sector.

The property sector dynamics have shifted in comparison to the previous year with a pick-up in sales and building activities resulting from the relaxing of lockdown restrictions and the end of the Home Ownership Campaign (HOC) in December 2021, according to HLIB Research analysts Tan Kai Shuen.

Other factors include increased living costs and decreasing household income, inflationary pressures on commodities and building materials costs, the reopening of the border in April 2022, the deglobalisation trend, the expected rate hike, and the resumption of foreign capital inflow.

In light of this, the business expects a patchy recovery among developers, with pockets of opportunity emerging as some players stand to benefit more from these factors, Tan said.

The end of the HOC increased living costs, and lower-income spending power, according to Tan, will favour the affordable segment.

While the sector value is undemanding, HLIB Research recommends nibbling into specific names like Sunway, Lagenda, Matrix, Mah Sing, and Sime Darby Property.

"As we navigate through 2022, selective property developers would benefit amid the change in sector dynamics from the previous year. We also favour developers who outsource their construction jobs with healthy cover ratios, provide decent dividend yield, have a healthy net gearing ratio, and have strong ESG profile and ratings," he said in a note recently.

Before introducing HOC, stamp duty exemption on property values up to RM500,000 was available to the affordable housing segment.

According to Tan, the inexpensive segment lost its competitive edge with the advent of HOC because the stamp duty exemption was extended to properties worth up to RM1 million.

"We see that in 2021, the percentage of residential transactions above RM500,000 declined, likely due to home buyers rushing to take advantage of the HOC campaign before it ended on December 2021," he said.

Tan said with the ending of HOC in December 2021, the tables have once again turned in favour of the affordable segment as purchases in this segment will continue to enjoy stamp duty exemption.

"Even during the HOC campaign, the affordable housing segment was still the most demanded segment comprising less than 75 per cent of the number of residential transactions. Furthermore, according to the Department of Statistics Malaysia, in 2020, as much as 20 per cent or c.580,000 households from the M40 households have shifted to the income limit of the B40 group.

"The broadening base of the lower-income group coupled with the rising living cost from inflationary pressure, especially on the food cost, will bolster the demand in the affordable home segment as home buyers will likely opt for affordable housing due to income constraints," he said.

Tan said under the firm's coverage, the three property developers that have their primary foothold in the affordable housing segment (below RM500,000) are Lagenda (100 per cent exposure), Matrix Concept (below 65 per cent exposure) and Mah Sing (about 60 per cent exposure).

All three companies enjoyed a healthy average take-up rate for their products - Lagenda (below 90 per cent), Mah Sing (below 90 per cent), Matrix (about 78 per cent), signalling positively that their launches are matching the local housing demand, Tan said.

"We also note that while most property developers have set either a flattish or lower sales target for FY22, Mah Sing and Lagenda are setting a higher sales target for FY22 by 25 per cent and 20 per cent, respectively, compared to the previous year, indicating their optimism and confidence in the market," he said.

Borders reopening good for developers

Tan believes Sunway would benefit the most from the reopening of the borders because of its integrated business strategy,

The inflow of tourists should benefit its medical segment from healthcare tourism. In contrast, he said that its theme park, hospitality, and REIT segments would also boost increased visitations for business and leisure travels.

The reopening of the borders, according to Tan, should help boost economic activity in Johor by allowing Singaporeans and Malaysians working in Singapore to visit the state more frequently.

"While this will provide some slight relief to the property developers in Johor, we believe the oversupply situation in Johor is too entrenched, aggravated by the holdback in launches during the pandemic. Thus, the oversupply situation in Johor will likely persist in the medium term in the absence of significant infrastructure and development spending boost from the state to develop the area," he said.