5% RPGT a ‘shock’ to CIMB Research

Written by Financial Daily
Tuesday, 27 October 2009 11:09

THE proposed imposition of a 5% flat fixed rate real property gains tax (RPGT) has come as a “shock” to CIMB Research as the government had suspended it merely two and a half years ago to give the property sector a boost and attract foreign purchasers.

Nonetheless, it said an expected selldown of property stocks on the news presented an acquisition opportunity for investors as the rate was still marginal and the sector was still anticipated to recover along with the economic recovery.

“The real property sector has enjoyed some measure of recovery in the past three to six months but transactions remain subdued and many developers have yet to undertake new launches.

“The RPGT of 5%, though low, could make developers pause and gauge market conditions before taking the plunge, which would push back their earnings recovery. Also, the re-imposition of RPGT may stir fears of more RPGT increases in future years, which could have a compounding dampening effect on the sector,” CIMB Research said in a note yesterday.

The research house said investors’ knee-jerk reaction to the RPGT news would be to sell down property stocks, especially since there was confusion over the actual RPGT rate and claims that the new RPGT was even more onerous than the pre-2007 structure.

“Investors should grab this window of opportunity to buy into property stocks as the 5% RPGT is very marginal and will not significantly alter the decisions of potential property buyers.

“The economy is set to climb back on the growth path in 4Q09, which bodes well for property demand as it typically lags behind the economy by three to six months. We also believe that real property prices will not be materially affected by the imposition of 5% RPGT though it may crimp slightly the rate of recovery and appreciation,” CIMB Research said.

CIMB maintained its trading buy call on the sector and all the property developers in its universe. KLCC Property Bhd remained CIMB Research’s only underperform.

Rerating catalysts for the sector include the strong stock market performance over the past six to seven months, gradual economic recovery which will boost income levels and confidence, and continued investor preference for higher-beta cyclical sectors.

EASTERN & ORIENTAL BHD [] (E&O) continues to be CIMB’s top pick in the sector. “Although its share price is likely to feel the effects of the RPGT confusion more than other property companies due to its high beta and liquidity, any weakness in its share price should be viewed as an opportunity to accumulate the stock cheaply,” CIMB Research.

E&O dropped eight sen to close at RM1.15 yesterday.


This article appeared in The Edge Financial Daily, October 27, 2009.