By Khairie Hisyam
Despite Bank Negara’s latest measures to curb rising household debt, analysts are still bullish on the long-term prospects of the property sector and back the sector to continue outperforming.
While the restrictions may affect sentiment towards property stocks in the short-term, the solid fundamentals of the Malaysian property market remains intact, said Am Research today which maintained its overweight rating for the sector.
Overall property demand would therefore only see a limited impact, said Maybank Investment Bank, which also maintained its ‘overweight’ rating on developers.
“Granted, property stocks may be under selling pressure with the new measure but the sector fundamentals are still strong in our view, driven by inherent demand from our young population, low-interest rate environment and high impact infrastructure spending i.e KVMRT,” said Public Investment Bank which maintained its ‘outperform’ call.
In addition to strong demand post-GE13, Am Research pointed out that developers are still aggressively increasing their landbanks with Gamuda Land’s RM620 million acquisition of 724 acres in Rawang last month.
“Newsflow momentum on the sector would be further underpinned by the imminent debut of two mega property IPOs in the pipeline; i.e. Iskandar Waterfront Holdings (IWH) and IOI Properties,” said Am Research.
In an announcement last Friday, Bank Negara capped personal loan tenures at 10 years and property financing tenures at 35 years. The central bank also prohibited pre-approved personal financing products.
Not as bad as DIBS curb
The consensus, it appears is that while the measures have some limited impact, they are not as bad as a potential clampdown on the controversial developer interest-bearing scheme (DIBS).
There was much heated discussion on the pros and cons of the scheme recently after news broke that Bank Negara is studying the risks associated with it.
“The new measure is not as punitive as feared earlier i.e. imposing curbs on the developer interest-bearing scheme (DIBS) which in our view would have impacted more buyers and slowed property sales,” said Public IB. “While negative in the near term, we believe the new measure is important to curb speculative buying and ensure healthy growth in the longer term.”
TA Securities, which also reiterated its overweight rating, agrees that the new policy would unlikely to have significant on the overall property sector. “The percentage increase in monthly installment, based on our case study on monthly instalment for a loan with 35-year and 40-year duration (respectively), is about 5.4%.” (see Table 1)
“Table 2 shows the level of affordability of individual will be reduced by about 5%,” added the research house.
Additionally, TA Securities also point out that loan tenures of up to 40 years for property purchases are not prevalent. It said that the usual tenure cap is at 35 years for residential properties and 25 years for non-residential properties based on its ground checks.
“Furthermore, we understand that these typical loans (with longer tenures) will only be granted to purchasers, who are a (1) professional and/or university graduate and (2) at the age of 25 to 35 on the date of loan application,” said the research house today. “This group of borrowers are deemed to have a greater repayment capability in the future.”
Therefore, said UOB Kay Hian, while the new measures will impact some of the younger borrowers who typically need longer tenures to lower monthly instalment commitments, they are “are unlikely to impact the borrowing capacity of mainstream buyers beyond a modest cascading effect.”
“The measures could weed out some speculators as house price expectations abate,” said UOB.
In terms of volume, Maybank highlighted that mortgages with more than 35 years of tenure account for less than 5% of commercial banks’ total mortgages. “So while we may see some slowdown in property loan approvals, we expect the impact to be contained,” said the research house.
However, UOB Kay Hian expects Bank Negara and the government to implement further measures should household debt levels continue rising. “Hence, BNM and the government could revisit imposing anti-speculative measures, such as curbing the popular DIBS and raising the real property gains tax (RPGT).”
Potential measures include some down south in Johor, said UOB, highlighting growing market expectations that the Johor government would impose more property-related curbs to clamp down on speculators and rein in house prices.
“There could be tougher measures imposed on top of the recent rumours of imposing higher tax rates on about 130,000 foreigners who own properties in the state (eg by raising the state assessment rates which have not been reviewed in 30 years),” said the research house.
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