KUCHING: The recent move to issue money lending licences to eligible property developers to provide up to 100 per cent financing for homebuyers is expected by the research arm of Public Investment Bank Bhd (PublicInvest Research) to have a muted impact but that there may be positive signals.
According to PublicInvest Research, the recent move by the Urban Wellbeing, Housing and Local Government Ministry has stirred up various dialogues on its impact and potential unintended consequences.
“Granted, various Ministers have voiced out the potential risks of the lending licence to property developers and we believe there will be more clarity or fine-tuning of the plan in the coming months,” the research arm said in a report yesterday.
It believed that the impact should be muted near term however, given that a similar-type “lending” started by Sunway which has allocated RM100 million under the group’s “Certainty Campaign” is less competitive compared to banks.
“Property is a capital intensive business and hence, providing lending can only be done by selected property developers and will not have an overarching impact to the sector.
“More importantly, lending without collateral obviously carries higher risks such as the higher interest rate,” it added.
The research arm believed that even with this lending option extended to purchasers, the lending rate itself will be prohibitive to make any commercial sense in the current market environment.
All told, while PublicInvest Research believed this particular measure’s impact will be minimal, the signalling is encouraging from the government to help flagging property demand currently, following the surprise overnight policy rate cut (OPR) by the central bank recently.
“More government measures are expected under Budget 2017 which among others could include relaxation of the Developer Interest-Bearing Scheme (DIBS) especially for first-time homebuyers, and measures to lower development costs.
“With the seemingly dovish stance by our central bank, OPR could be trending lower from the three per cent currently, which could help improve affordability somewhat.
“As for macro prudential measures by Bank Negara, it is a moot point on how these can be relaxed, given the current high household debt level at circa 89 per cent.
“Hence, we think it is unlikely to see more on this front apart from possibly easing lending requirements for first-time homebuyers,” the research arm said.
Overall, PublicInvest Research is of the view that property sales should recover in the second half of 2016 (2H16), driven by pent-up demand despite the difficult trading environment.
“Developers, we understand, are going to launch more projects with various aggressive marketing schemes which could squeeze margins but will be necessary under current market conditions in order to close on sales for their respective properties.
“We still like the sector with its undemanding valuations and attractive risk-reward benefits,” the research arm said.
In PublicInvest Research’s coverage universe, most property developers’ earnings in the near term are underpinned by healthy unbilled sales both locally and from overseas and supported by healthy balance sheets.
The research arm continued to like companies that have low holding costs i.e. cheap landbank.
With some trading even more than 50 per cent discount to book value, the research arm believed holding the stocks would give investors exposure into real assets cheaper than physical properties which should move up in tandem with inflation in the long run.
“Also, demand is expected to be underpinned by the young demographics, rising income and improved connectivity from infrastructure spending in the country,” it added.