Credit Suisse cuts rating on Malaysia property mart

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.

By New Straits Times (by Adeline Paul Raj)