Properties

There will always be hot stocks, as such SHL CONSOLIDATED BHD. So, the question is do you buy it?

As usual, firstly, decide. Are you an investor (long term) or a trader (trader).

Upon deciding, notice that stocks of a particular sector usually move in tandem with one another. For example, property stocks have performed particularly well year to date (YTD), among others;

1) Titijaya Land Bhd
2) Eco World Development Group Bhd
3) Tambun Indah Land Bhd
4) SHL Consolidated Bhd

This particular nature of stock sector movement has been pointed out by Ken Fisher, a well known investment figure, also the descendant of Philip Arthur Fisher, a prolific investment theories contributor famous with the likes of Benjamin Graham.

The key factor is to not look at a particular stock, hot or not, but at the entire market and then a focused sector. For example, since the doldrums of cooling measures to be taken by the Malaysian government regarding property transactions began (end of 2013 into 2014), property stocks declined or stagnated (before the rally).

How is it then property stocks were one of the best performers?

Simple. Demand versus supply. According to rough statistics (usually presented in local media), there are roughly a few million buyers below the age of 37 looking to purchase a house, with an average annual household formation of 140,000 according to a property market report by the National Property Information Centre (Napic) found in a October 2013 article as below.
[http://www.thestar.com.my/business/sme/2013/10/17/many-reasons-for-rising-property-prices-in-msia-rehda-treasurer-says-supply-and-demand-is-most-signi/]

More actual statistics, new house prices increase about 10% yearly in major cities (meaning a gain of 10% annually on average for new buyers).

A consequent, local market love new properties. As leverage financing (a loan) helps an individual purchase a property as to which the developer bears the interest while the property is constructed and upon completion, the property can be sold for a handsome profit even after deducting real property gains tax (RPGT) and other penalty/cost.

[Note the mentioned Developer Interest Bearing Scheme (DIBS) is no longer allowed though companies are still offering them and RPGT % has been increased; these being part of the cooling measures initiated by the government]

Back to the companies mentioned. All had large projects that were launched end of 2013 and in 2014. The projects were sold out quite well as buyers bought into the rush prior cooling measures towards the end of 2013 and then more when cheaper projects like that of Titijaya were released besides the new buyers buying their first properties.

Note, we do not know whether the purchasers prior cooling measures were actual buyers or investors gobbling up many property at once (now a minimum imposed per individual).
This lack of data affects our idea on the market as a whole i.e. whether can buyers still afford houses and is the demand still strong enough to last (assuming a property bubble is brewing).

However, the companies, research reports and media, all would convince you the gross development value (GDV) of projects were substantial, there were good take up rates and hence good profits quarterly and great share price movement.

This sector performance was also due to the lagging nature of the sector as a whole and the smaller cap companies (Titijaya, SHL) that launched big projects finally obtained valuation similar to that given to its larger peers i.e. Mah Sing Group Bhd. In between, due to geopolitics concerns etc, the bigger cap property companies received attention for their more stable outlook due to their size and their launches.

Outlook: Companies developing cheaper range properties will continue to do well.

The property market globally tends to show Malaysian property market still has a long way to go. Consider Japan that has generationS servicing ONE loan. However, further cooling measures as such the likes of Singapore may slow down property prices whilst prospective buyers' income rise adequately to become actual buyers (assuming Malaysia's high income nation target is reached with higher REAL wages)

In conclusion, property companies should fare well for years to come as long they provide proper supply of what is in demand and maintaining/creating an efficient business model.

Until next time, happy investing.


[UPDATE (29/05/2015):
This is one of the better articles on Malaysian property sector found on TheEdgeMarkets.com
By Lam Jian Wyn / City & Country, The Edge Malaysia   | May 28, 2015 : 8:00 PM MYT 
http://www.theedgemarkets.com/my/article/edge-investment-forum-real-estate-2015-property-market-remain-cool-over-next-12-24-months
A short note: Investments should always suit investors' financial health, goals and psychology.]