Rate cut boost for REITS
Those with floating facilities to benefit
PETALING JAYA: While the recent interest rate cut will have a minimal impact on the local property industry, the various supportive policies announced by the government is sufficient to help sustain the sector.
Kenanga Research in a report yesterday said it was timely for the government to reintroduce the Home Ownership Campaign (HOC); to allow a 90% loan-to-value ratio for third home purchases; and to abolish the real property gains tax to help support the property industry amidst the current challenging environment.
“Other policies that could further boost the space would include more automated mechanism to release unsold bumiputra units in certain states, lowering compliance costs and longer loan tenures, among others.”
Meanwhile, CGS-CIMB said potential beneficiaries of the overnight policy rate (OPR) cut include the property, auto and consumer sectors, due to the increase in consumers’ disposable incomes.
“However, we do not expect the impact to be significant as the Malaysian economy is expected to contract in 2020,” it said.
Bank Negara’s monetary policy committee cut the OPR by 25 basis points to 1.75% on Tuesday, as it expects the reduction to help speed the economic recovery.
Publicinvest Research, meanwhile, said the OPR adjustment could help some real estate investment trusts (REITS), especially those with floating rates, to save around 1%.
“We, however, keep earnings estimates unchanged on expectations that asset owners (especially malls) could see earnings affected by the ongoing pandemic slowdown.
“All told, given the current weak consumer sentiment, we still believe the REITS’ defensive attributes are being weakened further by higher risks of a credit crisis or a damaging recession. We maintain our neutral stance for now.”
Going forward, Kenanga Research said the supply-demand imbalance in the property market is expected to persist.
“Essentially, the high inventory levels comprising existing stocks and incoming supply of unsold units still under construction, will remain elevated in the foreseeable future.
“On the other hand, demand will likely weaken in the midst of economic uncertainties arising from the Covid-19 pandemic and oil price slump.”
Prior to the recent OPR cut, TA Securities in a recent report said an accommodative interest rate environment should bode well for the property sector.
“A historical low United States Federal Reserve fund rate as well as muted inflation would be supportive of another rate cut, if any,” it said.
It added that prospects for developers are expected to remain challenging, particularly for small-cap developers with less flexibility in rolling out attractive product types and pricing for their new launches.
“We expect the appetite to buy property to remain lacklustre for the next six months, as households are still concerned over job security as the world is experiencing a severe economic downturn.”
TA Securities said it expects a slow recovery for the property sector in the fourth quarter of this year.
“Depending on the effectiveness of the government’s efforts on restoring businesses and employment, increasing people’s purchasing power as well as discovering new economic opportunities, we expect a gradual recovery in the second half of 2021,” the research house said.