FOLLOWING a stellar fourth quarter 2021 earnings season, property developers will be looking to replicate, if not surpass that performance in 2022.

       Despite the absence of the Home Ownership Campaign (HOC) this year, which was a big contributing factor to sales in 2021, analysts are nevertheless optimistic about the outlook of the Malaysian property market.

       “With business activities normalised and the assurance by the government that there will not be any more lockdowns this year, we are positive on the outlook of the property market for 2022,” says an analyst from a local bank-backed brokerage.

       “We also continue to see pent-up demand for affordable homes and properties in good locations,” he adds.

       Another analyst says the spike in Covid-19 cases over the past one-and-a-half months has been a concern, but says businesses will need to be able to adjust to this.

       “We saw companies being forced to adjust and adapt to the way they conducted their business over the past two years.

       “Many tough lessons were learned and we expect developers to go into 2022 better prepared for any pandemic-related challenges that may come their way,” he said.

       MIDF Research in a recent report says earnings outlook for property companies is expected to be better in 2022 as construction activities at project sites normalise.

       “The higher sales recorded by property companies in 2021 should translate into higher earnings in 2022.

       “Nevertheless, we think that new property sales outlook would be flattish to slightly positive in 2022, as the stronger buying interest from easing of movement restriction would be partially offset by the discontinuation of the HOC.”

       Citing Bank Negara statistics, MIDF Research says loan applications in January 2022 remained strong at RM34.6bil (plus 5.4% year-on-year), as buying interest was higher following easing of movement control measures under the National Recovery Plan.

       “According to data released by Bank Negara, total loans applied for purchase of property recovered strongly to RM441bil in 2021 from RM334.8mil in 2020.

       “It must be noted that the total loans applied for purchase of property declined by 6.3% year-on-year in 2020, mainly due to the adverse impact of the lockdowns.”

       The research house says the recovery in loan applications for the purchase of property in 2021 indicated a recovery in property demand as a result of pent-up demand.

       “We believe that the recovery in demand was also driven by the HOC,” it says.

       With the HOC officially concluded last year and the recent spike in new Covid-19 cases, TA Securities points out that developers have conservatively set flat sales targets for this year.

       “However, we see pent-up demand for landed homes and affordable high rise in the urban areas.”

       Despite the absence of the HOC, the research house says bookings remain encouraging in the first two months of 2022.

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       “Additionally, the current sales target did not account for any potential land sale. As a result, we do see potential upside to 2022 sales performance.

       “All in, we believe the prolonged low interest rate environment, abundant market liquidity and supportive government measures will help to spur demand for properties.

       Furthermore, TA Research says better market sentiment, along with a stronger recovery in economic and business activities should contribute to better developers’ sales prospects ahead and eventually translate to stronger earnings, going forward.

       “We raised our 2022 and 2023 earnings per share (EPS) outlook by 1.5% and 1%, respectively, in response to the stronger-than-expected fourth quarter 2021 performance.

       “All in, we anticipate the sector to generate a robust 44% EPS growth in 2022, fuelled by sector recovery and a low base impact, before tapering to a moderate 2% year-on-year in 2023.”

       For the time being, TA Research says it is projecting sales growth of 2% and 7% in 2022 and 2023, respectively.

       The HOC was reintroduced in June 2020 under the Penjana initiative to boost the property market after it was adversely affected by the Covid-19 pandemic. The campaign ended on Dec 31, 2021.

       Commenting on the discontinuation of the HOC, Sime Darby Property Bhd (SDP) group managing director Datuk Azmir Merican says an extension of the HOC would bode well for the local property sector.

       “With the ending of the HOC, buyers may adopt a wait-and-see approach,” he said during a virtual briefing on the group’s fourth quarter financial performance, recently.

       “But I think the fact that we’re not having a lockdown gives us the confidence that it should not be too disruptive. So we do think that we will have a good year in 2022 in terms of sales,” Azmir adds.

       With the unlikelihood of a lockdown being imposed, Azmir says business operations will not be affected by supply chain and construction disruptions.

       “Of course if you ask us, we would like the HOC to continue and it does make sense considering that this is a recovery year. The HOC helped a lot of developers.

       “But as a property developer, we can’t depend on it and have to find ways around it. As a business we have our own targets and we need to find ways to achieve it.”

       Meanwhile, SDP integrated development chief operating officer Datuk Mohd Idris Abdullah says the group is closely monitoring the impact of rising raw material prices.

       “Material prices are volatile and we can’t control it, but we are looking at various angles on how to work within it.

       “Speedy construction, different designs – it is a challenge for us, but at least we know upfront that material prices are volatile. We do not compromise on budgets but still strive to be as efficient as possible,” he says.

       Going into 2022, RHB Investment Bank says most developers set their sales targets at between 5% and 15% lower than the amount they achieved in 2021.

       “This is understandable, given the absence of the HOC, as well as rising concerns on inflation. Over the near term, property sales in Singapore may also be slow due to the tightening measures announced in end-2021.

       “We note that more developers plan to expand or venture into the industrial property development segment to have a more diversified product portfolio and in view of the rising demand for industrial properties.”

       The research house adds that rising inflationary pressure, market expectations of an interest rate hike in the second half of 2022, market volatility arising from the Russia-Ukraine war, as well as the Johor state election (and timing of the next general election) will likely affect sentiment on the property market.”

       Kenanga Research meanwhile says the local property sector is still facing affordability, policy and oversupply issues.

       “Despite the low valuations (in price-to-book value terms), the sector still lacks sustainable earnings visibility and growth to justify a re-rating in valuations.

       “While sales numbers reported by developers have generally been good for 2021, we believe the real test would be in 2022 without the HOC discounts and the anticipation of interest rate hikes.”

       Kenanga Research adds that the high unsold units in circulation (high-rises in particular) and declining House Price Index are indicators that developers will find it increasingly challenging to drive sales while maintaining margins.