The two listed real estate agencies here are “hitting a speed bump” as this week’s property cooling measures bring “near-term headwinds”, writes CGS-CIMB Research analyst Lock Mun Yee.
In separate Oct 3 notes, Lock is maintaining “add” on APAC Realty and Propnex. She trims APAC Realty’s target price to 77 cents from 84 cents previously, while cutting Propnex’s target price to $1.89 from $2.07.
The recent round of property cooling measures announced on Sept 30 included raising interest rate floor for Total Debt Service Ratio (TDSR) and Mortgage Service Ratio (MSR) computation to 4% from 3.5% and lowering loan-to-value (LTV) for HDB housing loans to 80%.
The government also imposed a wait-out period of 15 months for private property owners (PPOs) buying non-subsidised HDB flats.
These are likely to result in quieter volume activity in the immediate term, writes Lock, as market sentiment is affected as well as potential buyers evaluating the impact of these changes on affordability.
“In all, we think that raising the floor interest rate for TDSR computation could dial down affordability by 5%-6%, thus impacting marginal buyers. That said, the wait-out period for private property owners before they can purchase HDB resale units may push demand for rental apartments in the near term. We believe the slower market activity could likely impact property brokers’ commission income in the near- to medium-term.”
See also: Government releases yet another set of property cooling measures amid rising market interest rates
APAC Realty diversifies
Market and activity diversification could provide a stable base for APAC Realty, says Lock. “APAC Realty has continued to diversify its business with the establishment of its Capital Markets & Investment Sales (CMIS) business unit, which engages high net-worth investors, family offices and institutional investors with services related to commercial, industrial and other segments. [It] has garnered good traction since it was established in February.”
In addition, the listed company behind ERA has presence in other regional markets, such as Indonesia, Thailand, Malaysia and Vietnam. “This will likely enable the group to ride on any market recovery in these markets,” writes Lock.
See also: RHB remains 'neutral' on real estate sector as cooling measures mainly target high-end HDB market
Lock lowers APAC Realty’s FY2022-2024 earnings per share (EPS) forecasts by 3.3%-5.9%. “We tweak down our private resale market volume transaction assumptions for APAC Realty in FY2022/FY2023 to -30%/0% y-o-y from -28%/+2% y-o-y, as well as project HDB resale transactions to shrink by 10% y-o-y in FY2023 ending in December as we think market activity could cool in the near-term.”
Lock maintains the assumption that APAC Realty would maintain its current market share of 41.9% and 41.8% share of the private and HDB resale markets, respectively, as at 1H2022.
Propnex forays into new segment
Propnex established a series of new opportunities in 1HFY2022 ended June 30 to expand its business activity base, says Lock.
In addition to its strategic expansion into the Good Class Bungalow (GCB) segment to penetrate the ultra-high net worth buyers, it expanded its footprint to Australia in 2QFY2022 with the establishment of an office in Melbourne.
The team has secured a number of collaborations with builders and developers to market locations in both Melbourne CBD and in growth suburbs. According to Lock, this expansion in its geographic footprint would also enable the group to tap into a new income source.
Lock tweaks down private resale market volume transaction assumptions for Propnex in FY2022/FY2023 to -25%/0% y-o-y from -28%/+2% y-o-y, as well as project HDB resale transactions to shrink by 10% y-o-y in FY2023.
Says Lock: “We think market activity could cool in the near-term. Accordingly, our FY2022-2024 EPS forecasts are lowered by 2.5%-5.1%. With a strong agent force of close to 12,000 as at August, we believe Propnex should be able to weather the slower market well.”
Shares in APAC Realty closed flat at 58 cents on Oct 4, down 18.3% year-to-date (ytd). Shares in Propnex closed 3 cents higher, or 2.08% up, at $1.47 on Oct 4, down 12.5% ytd
