Maybank IB: Interest rate hikes dampen property sector

• The research house maintains its "neutral" call on Malaysia's property sector
• Interest rate hikes will also affect highly-geared property developers

KUALA LUMPUR (July 4): Maybank Investment Bank (Maybank IB) is maintaining its "neutral" call on Malaysia’s property sector due to growing risks such as slower sales amid the rising interest rate environment and delays in new property launches, as well as rising raw material costs.

It also expects buying sentiment on big-ticket items to be affected by political uncertainties ahead of the 15th general election.

“Further interest rate hikes will not only hit buyers’ affordability but also highly-geared property developers.

“The fragile recovery in the property sector could be impacted by labour and raw material shortages, leading to sales and earnings risks (slower work progress, higher operating costs and potential liquidated ascertained damages [LAD] payment),” it said in a research note on Monday (July 4).

To ensure that projects are delivered on time, property developers might delay some of their new launches to avoid potential LAD payment in view of labour shortages, said Maybank IB.

Meanwhile, it noted that further interest rate hikes will not only hit buyers’ affordability but also highly-geared developers such as UEM Sunrise Bhd, while political uncertainties ahead of general elections usually negatively affect the purchase of big-ticket items.

“These sales/margins-suppressing headwinds such as labour and raw material shortages, political uncertainties and interest rate hikes will likely linger into 2023,” it said.

Without the Home Ownership Campaign (HOC), residential property sales in the first quarter of 2022 (1Q22) declined 6% quarter-on-quarter to RM23 billion from RM24.6 billion in 4Q21.

“In our view, while the HOC managed to lift the buying sentiment for properties, strict control on housing supply such as housing approvals and the plot ratio, as well as accurate and timely housing data for better housing planning and launches are equally important to solve the persistent overhang issue in the country.

“Complications may arise as land is also a state matter and the state government can legislate on land matters, hence proper coordination between the federal government and state governments is much needed in order to solve the overhang issue,” added Maybank IB.