CREDIT Suisse has cut its rating on Malaysia's property market in anticipation of
slower property purchases as higher fuel and power prices, as well as political
uncertainty, eat into consumer confidence.
The foreign investment bank said in a research report yesterday that it cut its
rating to "market weight" from "overweight" before.
"We are reducing it, primarily because we believe that consumer sentiment will be
hit by rising inflation and political "noise", which will result in potential house
buyers holding back," it said.
Consumer sentiment historically takes a severe beating during the quarter in which
there is a petrol price hike, it noted.
Rising building material prices will also result in higher house prices, thus hurting
affordability.
Affordability should, how-ever, improve in the medium term when Malaysians adapt
to the rising inflation, and as wages adjust, it said.
"In the short term, we expect a stalemate; property transactions will likely dry
up as developers hold back launching projects, while buyers take a wait-and-see
attitude," it said.
Credit Suisse believes that developers that have diversified landbanks, hands-on
management and a broad product mix will fare better during this slow period, citing
SP Setia and IOI Properties as examples.
Building owners such as KLCC Property Holdings, IGB Corp or property trusts, should
see their property prices appreciating, it said.
SP Setia, considered a bellwhether of Malaysia's property market, was one of the
biggest losers on the stock market yesterday after it reported second quarter earnings
that came in below market expectations.
This was because of margin pressure arising from higher construction, marketing
and funding costs.
Credit Suisse and Merrill Lynch both downgraded their recommendation on the stock
to "neutral" and "underperform" respectively.
"These margin pressures are not one-off events and will likely continue to have
an impact on earnings going forward," said Merrill Lynch, in a report yesterday.
"While we are firm believers in SP Setia, we think its stock price is unlikely to
outperform given the uncertain domestic outlook," it added.
The stock closed 22 sen, or 6.3 per cent, lower to RM3.28, making it the day's fourth
biggest loser on the stock market yesterday.