Property sector

Property sector

Maintain neutral call: According to media reports quoting Urban Wellbeing, Housing, and Local Government Minister Tan Sri Noh Omar, eligible housing developers can now obtain licences to provide homebuyers with up to 100% of house financing.

We gather that the interest rate will be capped at 12% (for loans with collateral) and 18% (loans without collateral), while loan repayment periods could be between 10 and 20 years. The initiative is aimed at overcoming difficulties faced by buyers in securing bank loans.

On the positive side, the new rules are expected to increase property developers’ sales slightly and hence may reduce the number of unsold units in the market.

Having said that, we believe that property developers will be very selective in applying the new scheme to their products as the cash flow from repayment periods exceeding 10 years is slower than the current period of between three and five years.

The latest Bank Negara Malaysia statistics show that “Approved Loan for Purchase of Property” in July 2016 dropped 13% year-on-year (y-o-y) to RM10.5 billion, a continuous 18-month decline since February 2015.

On a monthly sequential basis, approved loans in July were also lower at 6% quarter-on-quarter. The decline in approved loans was mainly due to lower applied loan amounts.

On a year-to-date cumulative basis, total approved loans for the first seven months of 2016 was RM67.5 billion (-22% y-o-y).

Therefore, we maintain our “neutral” view on the sector as we continue to see limited sales growth prospects for property developers in 2016.

We like UOA Development Bhd for its attractive dividend yield of 5.8% which should make it a favoured stock amid the current yield-seeking environment.

Besides, property sales of UOA are poised to make a strong comeback in the financial year ending Dec 31, 2016 (FY16) after recording a weak performance in FY15.

Also, its strong balance sheet with a net cash position of RM734 million would enable it to better withstand the prevailing downturn in the property market. — MIDF Research, Sept 9

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This article first appeared in The Edge Financial Daily, on Sept 13, 2016. Subscribe to The Edge Financial Daily here.

 

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