Maintain neutral: According to the National Property Information Centre, Malaysia’s property market recorded an 8% decline in transaction value and a 5.7% contraction in the number of transactions in 2015. This was the second-sharpest decline since 2002, after a 8.3% decline in 2009. In terms of transaction volume by state, Johor led the decline (-19%), followed by Penang (-16%), Kuala Lumpur (-10%) and Selangor (-6%).
In 2015, new launches (in unit) dropped 19% as developers delayed their launches after a fall in take-up rate from 45% to 41%. Despite the rise in number and value of unsold units (which increased 16% and 56% respectively), it still remains manageable as the total of unsold units only represents about 1.6% of existing housing stock.
In 2015, supply continued to accelerate, reaching 892,000 (+16%), representing 18% of Malaysia’s existing stocks, the highest since 2004. Based on our supply-and-demand analysis, Johor remains oversupplied, while Kuala Lumpur and Selangor are more balanced in terms of supply-and-demand dynamics.
After declining for 12 straight months, loan applications in February and March 2016 increased 1.9% and 5.6% year-on-year respectively. However, tightened bank lending will continue to constrain property sales with approval rate persistently below 50%. With the new governor appointed from within Bank Negara, we expect speculation of a potential relaxation of property measures to fizzle out.
In order to boost sales amid a challenging market, developers have come out with different kinds of creative products including attractive cash rebates, deferred payments with zero interest and financing schemes aimed to help alleviate upfront funding issues and difficulties in securing full loan for buyers.
However, affordable housing segment still remains as the bright spot. This can be seen by the launch of Elmina Valley Phase 1 and 2 (within RM600,000 range), which recorded above 90% of take-up rate within a day. The recent launch of MyDeposit Scheme from government will provide grants of up to RM30,000 for first-time homebuyers with household income of below RM10,000 purchasing properties below RM500,000. However, the impact might be minimal as the RM200 million budget allocation only translated into about 7,000 units or 3.5% of property transactions with value below RM500,000 in 2015.
Our rating on the property sector is “neutral”. A positive factor would be the favourable demographics with housing inflation hedge; while negative factors include a prolonged weakening of consumer sentiment and a tightening policy. Our top picks are Matrix Concepts Holdings Bhd (buy, TP: RM2.91) and IOI Properties Group Bhd (buy, TP: 2.77). We also have “buy” call on Sunway Bhd (TP: RM3.63).
This article first appeared in The Edge Financial Daily, on May 9, 2016. Subscribe to The Edge Financial Daily here.