Property downturn not as bad as in 1997

The current down cycle in the property market is not as bad as the 1997 Asian financial crisis, said ECM Libra Capital Sdn Bhd.

"We are more inclined to see a moderate property downturn similar to the dot-com bust days in 2001. Although oversupply is evident in varying degrees in various sub-segments of the property market, indications are that the market is fairly resilient," it said in a report yesterday.

"With the exception of luxury condominiums, correction of capital values and rental of properties should be moderate," it added.

ECM Libra recently hosted a property talk and invited property consultants from Regroup Associates as speakers to shed some light on whether the Malaysian property market is resilient enough to ride out the economic downturn.
"We came away from the talk with reinforced belief that the current property downcycle is not as bad as the Asian financial crisis," it said.

ECM Libra also said a "crash" test was carried out, revealing that the risk of declining sales is moderate and not likely to crash, especially residential properties.

"Further risk of margin erosion is also minimal as building material prices have stabilised, and developers are in a better financial position now as leverage is half that of the 1998 Asian financial crisis.

"Besides that, property stocks are already trading at "mini" distressed valuation last seen in 2001," it said, upgrading its call on the property sector from underweight to neutral.

"Although there may be more negative news in the near term, we believe most of the bad news have already been priced in. We believe that the fundamentals of the economy and property market are stronger now and the current downturn should be more moderate," it said.

Prices of property stocks have fallen by 50 per cent to 70 per cent year-to-date. However, ECM Libra warned that the change in its stance is more of turning less bearish than turning bullish, as property stocks will still operate under challenging environment over the next six to 12 months.

Sunway City is its top pick for the sector due to its more resilient earnings from property investment as well as its undemanding valuation.

By Business Times