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Overweight on property sector – buy property stocks now?

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Market slowed down. Some developers holding back. Bearish sentiment in the market and everyone is waiting and seeing if they should buy another property. Even foreigners, especially Singaporeans seem to be holding back due to uncertainty. There’s a good news though. RHB has upgraded the Malaysian property sector to overweight and its top picks are IJM Land and Sunway while it also likes Tambun Indah and Matrix Concepts for their thematic angle. In easy to understand terms, it means RHB is saying if you intend to buy stocks, you should be picking on property stocks and out of the many stocks, they recommended two which they adore and another two which they like.

The few factors for this upgrade would be undemanding sector valuations and catalysts from infrastructure project besides the potentially stronger 2014 GDP growth and a negative real interest rate environment. Negative real interest rate environment means the FD rate is lower than inflation. It means if you keep your money in bank for FD, you are losing more than if you invest it somewhere, perhaps stocks. RHB also said that they prefer larger cap stocks because these developers are typically those with much stronger balance sheets, better landbank portfolios, stronger brand names, solid management and execution track records. RHB Research also said that HSR (High Speed Rail), MRT lines 2&3 and Kwasa Damansara projects will be the future catalysts.

Personally, it may be wise to buy some of these stocks and hold due to its undemanding valuations. In other words, potentially the dividend rate may be higher than if you left your money in FD. However, if we are talking about the potential returns for a longer term, I personally would be venturing into the secondary market instead, buying in areas which give positive yields, even if the areas are not exactly what everyone is trying to buy. I reiterate, ‘positive’ yields and not any specific % such as 6% or 8% etc. Finding a 6% yield property today I believe would be extremely tough unless you happen to be lucky and the seller happened to be in a rush to sell. Happy deciding.

written on 31 March 2014

Next suggested article: Property for rental – Kepong

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