The majority of developers in Malaysia are still deliberating on whether to continue or defer future launches.
AmInvestment Bank Bhd (AmBank) analyst Thong Pak Leng said the Covid-19 breakout has caused a major upheaval in the global economy.
Malaysia's movement control order (MCO) which was put in place from March 18 to May 12, 2020, has put the economy in a pause for almost two months.
"Developers are assessing the current economic situation. We believe consumer sentiment remains weak for the time being with spending mainly focused on necessities while big-ticket items such as properties take a back seat," said Thong in a note.
The research house maintained its "neutral" view on the local property sector as it believes the outlook will remain challenging for the next 12 months, and it does not anticipate earnings surprises in the short to medium term.
Thong said developers under the firm's coverage have reasonable amount of unbilled sales and expect that they will remain profitable in the financial year 2020 (FY20) and FY21.
He said companies like S P Setia Bhd, Malaysian Resources Corp Bhd, and Eco World Development Group Bhd (EcoWorld) have many projects still in their early stages, hence the firm does not expect strong revenue recognition in the next 12 months.
"On the other hand, we remain cautious about the financial leverage of some companies as it is one of the key factors to their survivability during an economic downturn. Based on our data, the net gearing of developers under our coverage is still under control, averaging at about 36 per cent while interest coverage remains strong at about eight times," he said.
Thong said Crest Builder Bhd has the highest net gearing at 92 per cent followed by EcoWorld's 67 per cent and S P Setia's 60 per cent.
Meanwhile, he expects the affordable segment to perform better, driven by its mass market, especially demand from young professionals and families due to continued urbanisation.
"This is well reflected by the move by the majority of local property developers to focus on this segment," he said.
Thong said the positive news for developers is the reintroduction of home-ownership campaign with stamp duty exemption to purchase residential properties priced RM300,000 to RM2.5 million and the exemption of real property gain tax (RPGT) for Malaysians on the disposal of residential properties made from June 1, 2020, to December 31, 2021.
These key measures will improve the overall sentiment of house buyers and the residential property market in Malaysia, he said.
The firm's top pick for the sector is IOI Properties Group (IOIPG), which is banking on a strong contribution from its property development projects, particularly in China and Singapore.
IOIPG is launching its Xiamen 2 project, comprising high-rise residential and landed residential with GDV of RMB800 million, progressively this year.
The property group is also scheduled to launch Xiamen 3.