Property demand improves, but supply remains large

KUCHING: Malaysia’s property sector outlook remains challenging in 2018 as rising unsold stocks could dampen buying sentiments, analysts say.

The research arm of Maybank Investment Bank Bhd (Maybank IB Research) was of the view that property sales are likely to stay challenging and an absolute recovery is still a distance away, with the sector plagued by a large stockpile of unsold properties.

It pointed out that while there are improvements in property demand and mortgage loan applications and approvals, Bank Negara Malaysia’s (BNM) potential overnight policy rate (OPR) hike and rising unsold stocks could dampen buying sentiment.

“In our view, it will still take some time for the broad-based property supply-demand to rebalance,” it opined.

Property sales value country-wide bottomed and started to recover in the third quarter of 2017 (3Q17) to RM17 billion alongside the improvement in mortgage approvals and application rates.

“Nevertheless, there are still no clear signs of a broadbased pick-up and sales could continue to be plagued by sizeable unsold stocks. BNM has red-flagged the surge in unsold stocks in the residential segment and this could weigh on mortgage loan disbursement by the banks,” it said.

As for the affordable homes market, while the underlying demand for affordable homes remains relatively strong as compared to the other property products, Maybank IB Research is cautious on this property segment.

This is in view of the high volume of new properties launched under this segment in recent years as developers have been switching their focus.

“In addition to the private sector developers, the various state governments and federal government also have their respective affordable housing schemes which add onto the ‘stockpile’,” it said.

It added, due to higher involvements in affordable housing, margins are likely to stay subdued.

Maybank IB Research also highlighted that cautiousness among lenders might continue to weigh on mortgage loan disbursements especially after BNM has red-flagged the surge in unsold stocks in the residential segment.

“Despite the improvement in household (HH) debt-to-GDP ratio by four percentage points (ppts) to 85 per cent as at end-September 2017, we do not expect any policy easing to happen in the short term in view of BNM’s continuous efforts in reining in HH debt expansion.

“Elsewhere, our Economics Team expects a 25bps hike in the OPR to 3.25 per cent in 2018.

“This could translate to an additional mortgage payment of RM67 (2.9 per cent) p.m. for a property worth RM500,000 assuming 90 per cent loan financing at a base rate of 4.4 per cent and 30-year loan tenure, which is manageable,” it said.

Overall, Maybank IB Research continued to expect an ‘L-shaped’ recovery for the property sector and it believed that property sales could only recover more significantly after 2018.

That said, it also believed that there could be some trading opportunities from sector rotation/better market sentiment ahead of the 14th General Election (GE14). However, it also pointed out that this could be short-lived if weak sector fundamentals persist.

Maybank IB Research pegged a ‘neutral’ view on the sector.

“While some projects have received relatively stronger take-ups, there are still no clear signs of a broad-based pick-up. The property sector outlook remains challenging in view of the current overhang issue.

“Rising property auctions (another form of competition) will also be negative to developers’ pricing power and take-up rates in the primary market, in our view.

“Elsewhere, margins are likely to stay subdued or even weaken in the near term, in anticipation of more discounts/rebates/marketing incentives to lock in the prospective buyers as well as higher involvement in affordable housing segment (which carries lower margins).

“We expect a slow recovery and believe that sales will only pick up meaningfully from 2019 onwards, at best.” – Borneo Post