Harsh economic landscape to soften property sector, says AffinHwang
KUCHING: The property sector’s soft outlook is expected by AffinHwang Investment Bank Bhd (AffinHwang Research) to persist against a backdrop of softening and challenging economic environment, and tougher and more stringent credit approval standards.
The research house expects property sales in the first quarter of 2015 (1Q15) to remain encouraging on the back of purchases ahead of the implementation of goods and services tax (GST) in April 2015.
“Thereafter, we believe property sales may soften,” the research arm said, adding that the softer gross domestic product (GDP) growth of five per cent in 2015E, from 5.8 per cent in 2014E does not help either.
It noted that even the World Bank has lowered Malaysia’s 2015 GDP to 4.7 per cent (from an earlier estimate of 4.9 per cent) on the expectations of slower export growth, lower investments in the oil and gas industry as well as a more moderate private consumption, post implementation of GST.
AffinHwang Research further noted that one of the key challenges for the property sector is access to loans for potential buyers.
“Across the board, we gather that loan rejection rates surged to 40-50 per cent, compared to a mere five to 10 per cent just three years ago,” it said.
While the average property prices have gone up by about eight per cent year on year (y-o-y) in 2014, the research arm noted that the total loan approved grew by a mere one per cent.
With the household debt-to-GDP ratio estimated to reach a high of 90 per cent in 2014, from 60 per cent in 2008 and 72 per cent in 2009, it believes the loan approval process will continue to remain stringent, thus further limiting property sales.
On the lower affordability of the properties, the research arm believes that overall property prices have outpaced inflation and the increment in wages.
It noted that since end-08, the Malaysia house price index has grown by more than 60 per cent.
“With the impending implementation of the six per cent GST as well as on-going government subsidy rationalisation programme, we anticipate the cost of living to increase, resulting in lower affordability and slower property purchases,” it said.
After hitting the trough levels in 2009-2010, AffinHwang Research further noted that the residential housing indices have improved from a low of 17,000 units in 4Q19 to between 31,000-40,000 units over the last one year.
“Incoming supply of residential properties hit an all-time high of 725,000 units in 2Q14,” the research arm said, adding that similarly, the number of building plan approved hit a peak of 51,000 units in 2Q14.
It further noted that the number of housing starts remains relatively high at between 30,000 to 40,000 units over the last five quarters, indicating large supply coming into the market in the future.
While property prices may hold up (or even increase slightly) due to higher costs, the number of new property sales and take-up rate are likely to remain challenging on the back of softer economic outlook, stringent loan approval process, and tough property cooling measures; not to mention lower affordability.
“Property developers will, in turn, experience margin compression,” it added.
To cushion the slowdown, developers are fine-tuning their product lines by launching more affordable homes and landed properties within an established township, it said.
“Against this backdrop, it likes property players with a focus on townships, which offer various mixed products, good geographical spread and offer mass market affordable homes.
“We also like developers who have a higher exposure in the Klang Valley, which we believe, will continue to be the most resilient on the back of favourable population demographic and urbanisation.”