“Bull Or Bear Property Market?”
Bull or Bear Property Market?
As a ex professional stock picker aka investment analyst in a previous life, I used to be a salesman. Stockbroking firms are separated into two main departments. The front office aka the sales team (many were previously investment analysts) maintains relationships with clients, and generates revenue for the firm. They talk to their clients every day, feeding them trading ideas.
The back office aka research team and operations/settlements teams supports the sales team by providing actionable investment ideas, bookkeeping and transactions processing. Although I never worked in the front office in the 1980s to 1990s when I was employed by some top stockbroking firms, I always considered my research analyst job as a sales job - I was selling a somewhat intangible but nevertheless a valuable service. You see, everyone in a stockbrokering firm is in fact a salesman, from the CEO down to the junior in settlements. Marketing is the lifeblood of many industries.
Bull or Bear on Wall St Finance Avenue?
I see a bronze bull statue was erected recently at I Berhad’s Wall Street Finance Avenue. Does that mean the folks at I Berhad are perhaps really “bullish” on prospects for their new project properties?
Or maybe they are “ bullish “ for the prospects for the developers of property projects?
I have previously commented on a fellow business school alumni’s column in a property portal about how to evaluate listed property stocks. He is a value investor that believes in fundamental analysis to help investors identify, screen and pick undervalued stocks. But I suspect 2022 is probably going to turn out to be a challenging year for property developers. And 2023 as well because of what I call the Triple Whammy
Developers ‘ Triple Whammy Explained
Property developers in Malaysia are facing a tough business environment. It’s going to get worse in 2023 for the following reasons:
Interest rates are projected to increase (resulting in higher funding costs for property developers),
Inflationary pressures have pushed up building material costs and labor inputs (resulting in shrinking development profit margins). Some property developers will soon find themselves in an invidious situation.
If they decide to hold their main contractors to signed fixed price contracts, their main contractors will probably quit. Delays in finding a replacement might lead to higher LAD expenses. Or developers might choose to renegotiate some terms with their existing main contractors, absorbing some of the increased costs, albeit at the expense of lower profit margins.
Lacklustre housing loan demand by High End property buyers (the evidence is in the declining prices PSF in auctions of some KLCC luxury properties that have seen no buyers at 2nd, 3rd and even 4th auctions). When loan demand for mortgages fall, there is of course no fresh influx of home buyers to push property prices higher.
Some borrowers are now complaining their monthly housing loan installments are up. But if Bank Negara Malaysia does not increase interest rates fast enough, I think but cannot be 100 % sure inflation is going to be hard to tame.
What do YOU think about the prospects for the property market?
Are you a Bull or a Bear?
Post Script
Looking at the pictures of people posing, smiling and happy, next to the bronze bull statue reminds me of pictures depicting the story of Belshazzar's Feast in the book of Daniel. In Chapter 5 of the book of Daniel, a hand suddenly appears out of thin air at the feast and writes four mysterious words on the wall.
" The writing is on the wall” is a phrase much beloved by investment analysts to describe ominous portents something bad is going to happen.
#investmentproperty #propertymarketoutlook
