With Budget 2022 now already been announced, stock houses are sieving through the details to make calls on the sectors. KKAF Equities has highlighted some of them including the property sector which is has called on as Overweight, here’s the commentary.
Some of the key proposals for placing the status is due to the no mentioning of the extension of Home Ownership Campaign (HOC). Affordable housing programme for low income earners worth RM1.5b. Credit guarantee scheme worth RM2.0b for those without fixed income (e.g., gig economy) to access home financing. Removal of RPGT from the 6th year of purchase onwards.
On this front, KAF maintains its Overweight stance on the sector. Property counters had run ahead of Budget 2022 in anticipation of extension of Home Ownership Campaign (HOC) into 2022. However, there is no announcement on the said extension. Instead, only the abovementioned proposals were mentioned, which it believes would be a non-event (except for the removal of RPGT). There may be a short-term pull back in share prices from current levels, however, it equity house remains positive on the sector as we believe that demand recovery would remain intact.
Recall that the main component of HOC was the waiver of stamp duty for properties purchases until end-2021. Despite of being silent on the extension of HOC, the stamp duty waiver would still be applicable for properties that are priced up to RM500k a unit until end-2025. Therefore, developers that are focusing on the affordable segment would still enjoy the strong demand flow from this initiative until end-2025.
However, there could be a possibility for an off-budget HOC extension towards yearend (as what we have witnessed in end-May this year). Furthermore, it believes that developers will continue to offer similar promotional campaigns during the current HOC. As it is, residential transactions volume has already picked up significantly with a higher
average transacted prices in a low-interest rate environment. KAF picks Mah Sing is its top pick for the sector given its niche in affordable housing with more than half of its products offerings are priced less than RM500k. Mah Sing is also a laggard name in the recent properties run-up.
For developers under its coverage, its estimated that the impact on the implementation of Cukai Makmur in 2022F on the earnings would be lower earnings by 7-10% and higher effective tax rate by c.6ppts to c. 30-31% in general. However, the impact on valuation would be minimal as KAF uses RNAV with projects spanning over multiple years and the revised tax rate to 33% is only applicable in the year assessment of 2022.
