KUCHING: Sentiments on the high-beta property sector will likely change in coming months as global macro factors change to no longer be accommodative, with the reversal of liquidity flow as well as rising bond yields.
According to RHB Research Institute Sdn Bhd (RHB Research) analyst Loong Kok Wen in a sectoral outlook, as liquidity unwinds from its peak, growth momentum in the real estate sector will slow down.
Regionally, Loong said the Hong Kong and Singapore property indices have also turned bearish, with a decline of 12 per cent and 10 per cent over the last two months.
“We believe the sentiment on the high-beta property sector will change in the coming months. The global macro factors are no longer accommodative, as the US Federal Reserve moves closer to reducing its stimulus programme, thus resulting in reversal of liquidity flow as well as rising bond yields,” Loong opined.
Note that excess liquidity mopped up by Bank Negara Malaysia (BNM) has increased by 22 per cent since the beginning of 2011 till May 2013. Hence, regardless of whether the speed is rapid or gradual, the unwinding of liquidity from its peak would mean slower growth momentum in the real estate sector moving forward.
Also, the US 10-year government bond yield and Malaysia 10-year government bond yield have risen significantly by 72 and 22 basis points (bps) respectively since January this year. The fluctuations in Malaysia bond yield are even sharper from three per cent post 13th general election to 3.7 per cent currently.
As a result of liquidity reversal, RHB Research noted that the high-rise luxury segment is likely to be more negatively affected as foreign buying retraces from its all-time high level when liquidity flow was strong in the first half of 2013 (1H13).
The Iskandar, Penang island and KL city centre areas, which have high foreign buying content, will likely see slower sales, while en bloc transactions will also turn sluggish. Township and landed properties, however, will be more favourable due to sustained genuine demand.
“We believe these macro factors are sufficient to dent investors’ sentiment on property stocks. As a result of liquidity reversal, the highrise luxury segment is likely to be more negatively affected as foreign buying retraces from its all-time high level when liquidity flow was strong in the 1H13.
“The Iskandar, Penang island and KL city centre are the key areas that foreigners have been concentrating on. Property sales growth in thse markets could therefore gradually slow down going into 2H. En bloc transactions will also become less active.
“Township and landed properties, on the other hand, will be more favourable due to sustained genuine demand from the local populatio,” the research house explained.
“We are positive on Iskandar over the longer term, as the relocation of small medium enterprises (SMEs) in Singapore to Iskandar makes economic sense. However, over the short term, Iskandar could see some negative impact due to the change in macro environment.”
Given Khazanah’s initiatives and the Singapore government’s support in the recent years, RHB Research believed that the Iskandar region has successfully attracted many overseas property buyers, especially from Singapore, over the last three years.
Property prices (measured by House Price Index), as a result, have appreciated sharply by 20 per cent to 48 per cent since first quarter 2011 (1Q2011).
Prices for certain new launches in Iskandar have even matched the current prices in the KLCC and Klang Valley areas.
“While we believe some developers will still be able to price their projects at high selling prices over the short term, the room for further significant price growth from the current level could be limited, considering the sharp spike in prices within a short span of time,” it said.
RHB Research further added, “we believe the new measure imposed the Monetary Authority of Singapore (MAS) last week will affect the Iskandar property market negatively to a certain extent. The MAS has recently tightened the framework for total debt servicing ratio, whereby the ratio, including all types of property loans, must not exceed 60 per cent.
“As a result, buyers from Singapore will turn cautious, and could be deterred temporarily from buying more properties over the causeway, due to tighter financing availability.
“Even if the Singapore property buyers will still be able to take on loans from Malaysia banks now, buyers will have to take into consideration their limited access to mortgage financing from the Singapore banks in future.”