Finance, construction remain key drivers for property sector
KUCHING: The financial and construction sectors remain key drivers to Malaysia’s property sector outlook, says Kenanga Investment Bank Bhd ( Kenanga Research), as higher business risk profiles should be commensurated by higher return on equities ( ROEs).
“We view the financial sector as key driver of the property sector as most house purchases are financed by home loans,” it said in a note yesterday.
“The construction sector is equally important to the property sector as it is a cost factor which ultimately influences developer’s margins.
“We believe the sector needs further policy clarity, particularly on the affordable housing policy – including a national database –which requires time for the new ruling government to study.”
Kenanga Research noted that the Ministry of Housing and Local Government ( KPKT) will be discussing with the Ministry of Finance ( MoF) and Bank Negara Malaysia ( BNM) on relaxing current lending guidelines to enable more home buyers from the B40 and M40 groups to secure housing loans – part of the evaluation is expected to consider family household income as opposed to just individual income and widening the scope of rent-to- own ( RTO) schemes.
Under Pakatan Harapan’s manifesto, one of the promises is to build one million affordable homes across Malaysia within two terms of the new ruling government – this implies an average of 100,000 new units per annum over a 10-year period.
“The other aspect of property demand is lending liquidity to the sector,” it said.
“Even residential loans applications and approvals indicators
We view the financial sector as key driver of the property sector as most house purchases are financed by home loans.
have shown strong improvements, we note that this has not been felt by our universe of developers.
“In our earlier reports, we highlighted this could be due to competition from government housing schemes and other non-listed developers which are catering for this affordable market.
“With very flattish residential transactions, developers have had to fight for market share to achieve their sales targets. Over CY17, we did not observe any significant improvements in our universe’s market share on a yearly basis basis.”
Kenanga Research believed that current banking system’s real- estate appetite has moderated from its peak some three to five years ago.
Currently, the proportion of housing to total banking system loans is at a record high of 31 per cent; for risk management purposes, banks will typically try to keep real estate related loans exposure at a cap of 30 to 40 per cent, which means limited upside for the banks to increase exposure in housing loans.
“This means if there is more affordable housing supply, lending liquidity could be channelled to this segment, which may not be beneficial for our universe of developers because not all their products will be able to meet the ‘affordable housing’ definition,” it said.
“Tougher to forecast sales this year. Most developers are actively clearing inventories or properties close to completion – note that WIPs/inventories hit a recordhigh last year. As a result, momentum of sales of inventories will be tougher to forecasts unlike new launches.
“Thus, sales delivery this year could be lumpy implying that August 2018 reporting season or first half of 2018 sales figures may throw both negative and positive surprises.”
Kenanga Research