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Property Sector
New EPF withdrawal scheme
Greater home purchasing power with new EPF withdrawal scheme. According to the news release on EPF’s website, EPF members who have not withdrawn under the EPF Withdrawal to purchase a house or reduce housing loan will have the opportunity to purchase a house of higher value under the ‘Flexible Housing Withd rawal’ (FWS) scheme. It is design so that EPF members can finance housing mortgages based on current and future savings. The scheme will be effective 1 August 2010.
Generally positive for the residential market, particularly the ‘upgraders market’. The scheme increases affordability of homes for many. However, the new scheme is still confined to one home. Also, recall many would have undertaken the scheme since the introduction of EPF withdrawals from Account 2 which allows for monthly withdrawals to help reduce mortgage burdens. Hence, we do not anticipate a significant surge in overall property demand, but will see greater activity in the mid to mid-high end segments.
Key beneficiaries are township and suburban developers like SP Setia (BUY; TP: RM4.78) , IJM Land (BUY; TP: RM2.80) and Mah Sing Group (BUY; TP: RM2.20). Their landbanks are located in matured suburbs which tend to cater towards upgraders market.
How it works. From our understanding, EPF members can allocate a certain amount of monthly contributions into a designated account or the FWS account, say RMx. Instead of using RMx to help finance monthly mortgages, the FWS account becomes a collateral, by which one can take out a larger monthly mortgage to finance a more expensive home. Under the FWS scheme, the contributions in the FWS account cannot be touched unless the house is sold or paid off.
For example: Contributor A has RM50,000 in his EPF Account 2 and has a monthly contribution of RM1,000 into Account 2. Contributor A can take out RM20,000 as the house downpayment and park remaining RM30,000 in the FWS account. Contributor A can then opt to park a portion of his monthly contribution into Account 2, say RM500 monthly, into his FWS. Banks will base Contributor A’s loan evaluation of the FWS account.
Eligibility. The scheme is eligible for EPF members who have not utilized Account 2 to buy a house or reduce a housing loan. For those who have utilized the Account 2 to buy a house or reduce a housing loan, they will need to sell that house fi rst and then apply for the new scheme.
Lacking details on banker’s method of ascertaining higher loans given to home buyers under the FWS scheme. Nonetheless, we think banking risks remain low as we do not expect any sharp correction in residential prices. As long as the underlying asset value does not fall, banks still has an asset guarantee in the event of loan defaults.
Maintain Trading BUY. We still think pent-up demand has peaked and the new EPF withdrawal scheme still confines EPF members to financing only one home at a time. We believe rapid rising prices in the primary residential space in selected areas (e.g. Desa Park City, Kota Damansara, etc) are signaling declines in home affordability; hence the new EPF scheme. We also anticipate RPGT to be in creased this year to 10% given the outperformance in the property sector. Nonetheless, the attractive valuations of the sector (0.9x PBV, 10x-11x PERs) and it being a laggard to the market, provides excellent trading opportunities and bargains.
New EPF withdrawal scheme
Greater home purchasing power with new EPF withdrawal scheme. According to the news release on EPF’s website, EPF members who have not withdrawn under the EPF Withdrawal to purchase a house or reduce housing loan will have the opportunity to purchase a house of higher value under the ‘Flexible Housing Withd rawal’ (FWS) scheme. It is design so that EPF members can finance housing mortgages based on current and future savings. The scheme will be effective 1 August 2010.
Generally positive for the residential market, particularly the ‘upgraders market’. The scheme increases affordability of homes for many. However, the new scheme is still confined to one home. Also, recall many would have undertaken the scheme since the introduction of EPF withdrawals from Account 2 which allows for monthly withdrawals to help reduce mortgage burdens. Hence, we do not anticipate a significant surge in overall property demand, but will see greater activity in the mid to mid-high end segments.
Key beneficiaries are township and suburban developers like SP Setia (BUY; TP: RM4.78) , IJM Land (BUY; TP: RM2.80) and Mah Sing Group (BUY; TP: RM2.20). Their landbanks are located in matured suburbs which tend to cater towards upgraders market.
How it works. From our understanding, EPF members can allocate a certain amount of monthly contributions into a designated account or the FWS account, say RMx. Instead of using RMx to help finance monthly mortgages, the FWS account becomes a collateral, by which one can take out a larger monthly mortgage to finance a more expensive home. Under the FWS scheme, the contributions in the FWS account cannot be touched unless the house is sold or paid off.
For example: Contributor A has RM50,000 in his EPF Account 2 and has a monthly contribution of RM1,000 into Account 2. Contributor A can take out RM20,000 as the house downpayment and park remaining RM30,000 in the FWS account. Contributor A can then opt to park a portion of his monthly contribution into Account 2, say RM500 monthly, into his FWS. Banks will base Contributor A’s loan evaluation of the FWS account.
Eligibility. The scheme is eligible for EPF members who have not utilized Account 2 to buy a house or reduce a housing loan. For those who have utilized the Account 2 to buy a house or reduce a housing loan, they will need to sell that house fi rst and then apply for the new scheme.
Lacking details on banker’s method of ascertaining higher loans given to home buyers under the FWS scheme. Nonetheless, we think banking risks remain low as we do not expect any sharp correction in residential prices. As long as the underlying asset value does not fall, banks still has an asset guarantee in the event of loan defaults.
Maintain Trading BUY. We still think pent-up demand has peaked and the new EPF withdrawal scheme still confines EPF members to financing only one home at a time. We believe rapid rising prices in the primary residential space in selected areas (e.g. Desa Park City, Kota Damansara, etc) are signaling declines in home affordability; hence the new EPF scheme. We also anticipate RPGT to be in creased this year to 10% given the outperformance in the property sector. Nonetheless, the attractive valuations of the sector (0.9x PBV, 10x-11x PERs) and it being a laggard to the market, provides excellent trading opportunities and bargains.
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