Maintain overweight: We have upgraded the property sector earlier this month from neutral to overweight due to the convergence of sustained property demand despite the 5% real property gains tax (RPGT), and recent price correction affecting property stocks, which led us to believe that the sector will be an outperformer going into 2010.

Prime Minister Datuk Seri Najib Razak presented the perfect Christmas gift to the Malaysian property market when he announced on Dec 23 that the RPGT will apply only to properties sold within five years of the date of purchase.

Recall that the government reintroduced the RPGT during the Budget 2010 which imposed a flat 5% tax on gains from the sale of property regardless of the year of acquisition with effect from Jan 1, 2010.

Going forward, while there is still a 5% RPGT for property sold within five years, we believe the toning down by the government from its earlier proposal will provide much-needed relief to the property sector as it sends an affirmative signal that the government will adopt an accommodative stance to support growth in the sector.

Even with the RPGT, we have noticed very strong take-up rates in the past few weeks for landed residential properties, especially super-link terrace houses, semi-detached houses and bungalows which cater to the upper-middle class.

We attribute such strong buying interest to the low interest rate environment as well as improving sentiment on the economic outlook.

With the relaxation of the RPGT, we believe buying interest will pick up pace especially among upgraders who need to sell their existing properties first.

We believe developers with residential properties catering to the middle to upper-middle class such as Sunway City Bhd (SunCity) (buy, target price RM3.60) and S P Setia Bhd (buy, target price RM4.05) will benefit from strong demand and hence, rate these two as our top picks for the sector.

Among non-rated property stocks, we also like IJM Land Bhd and Mah Sing Group Bhd. — ECM Libra Investment Research, Dec 24