Full-fledged property recovery not expected in 2018
KUCHING: While there have been some encouraging signs of a potential comeback to our property sector in 2017, AmInvestment Bank Bhd (AmInvestment Bank) has guided that they are not expecting the sector to make a full-fledge recovery in 2018 as various key challenges still remain.
According to the bank in a sector report, the most encouraging signs of a recovery in the property sector in 2017 were observations that developers have been adjusting to the reality that mass-market affordable housing is where the demand is.
The willingness of certain developers to cut prices to the tune of 10 to 15 per cent or more, in order to clear unsold stocks, it added.
“We expect these trends to prevail in 2018, bring some life back to the sector. However, we do not expect a fullfledged recovery of the sector within the next 12 months, as various key challenges remain,” said the bank.
The key challenges still remaining within our property sector include: generally still elevated home prices; the low loan to value or financing margin offered by banks; and consumer inability to qualify for a home mortgage due to their already high debt service ratios ( DSR).
“The DSR is calculated by dividing one’s debt service obligations by his or her income, most banks observe a cap of 60 per cent for the low-income group, and up to 80 per cent for the high-income group.
“Potential house buyers may have little room left to take on a home mortgage due to their existing debt service commitments arising from outstanding study, car or personal loans, while their incomes have not kept pace with the commitments,” explained the bank.
Additionally, consumer sentiment is still subdued due to rising cost of living, elevated household debts and weak job security as many local industry such as the financial and oil and gas sectors have begun consolidating.
“These are holding consumers back from committing themselves to the purchase of big-ticket items including a house, and not helping either, is the potential hikes in the overnight policy rate in 2018 as Bank Negara Malaysia’s policy stance have shifted slight more hawkish than before,” said AmInvestment Bank.
While these issues could be partially addressed with the offering of affordable housing and flexible financing plans to the low-income group, there is still the concern of shrinking margins as the property sector shifts towards affordable housing alongside rising competition within the sector.
“We believe the investment case for affordable housing developer only holds water if the developer is able to sell affordable houses in large quantities, has access to highly cost-effective and speedy construction methods, and most importantly, has the ability to secure strategic landbank with a high plot ratio at cheap prices.
“Otherwise, we are more inclined to see selling affordable housing as a means for developers in general to tide themselves over while waiting for the property market to turn around,” guided the bank.
That being said, the report added that the bank foresees a bright spot for developers in overseas projects instead as recovery in property markers in the UK, Australia, Singapore and Vietnam have already begun to see recovery in 2017.
“These markets are ahead of Malaysia in terms of their recent boom-bust cycles. They have been through the consolidation phase and are now on a recovery path,” said the bank.
Overall, the bank retained its neutral stance on the sector in 2018.