By Khairul Khalid
Tight lending measures by banks will continue to hamper growth of the local property market in the first half of 2016 (1H16), according to a Kenanga research report.
“Lacklustre banking system indicators for the property sector continue to persist. We see no significant improvements in property loans applied/approved data, which is still on a downtrend. This has been the case for most of last year.
“The banking system Loans-to-Deposit Ratio (LDR) has weakened further, reaching historical high of 86.3% in October 2015. We do not foresee the current lending environment to improve over the next three to six months, indicating that property transactions could still be slow,” said Kenanga.
The report also stated that speculations of pent-up demand in the property sector that might boost the market in 2H16 is not necessarily true.
“Industry players are speculating that 2H16 will be better than 1H16 due to pent-up demand. We like to highlight that many developers also anticipated similar ‘better 2Hs’ trends over 2015, which was not the case.
“We reiterate than until lending liquidity to the sector improves or increase of affordable housing supply is more readily available, ‘pent-up’ demand may not be realised,” said Kenanga.
Kenanga also expects listed and reputable property developers to fight for market share in a shrinking pie to sustain sales targets.
It also said that mega infrastructure projects such as the proposed high-speed rail between Kuala Lumpur and Singapore are unlikely to revive the property sector in the near term because these catalysts are longer-term play.
However, the potential reintroduction of the banned developers interest-bearing scheme (DIBS) may boost the market, especially for first-time home buyers although there are also risks attached to lifting the ban.
“Industry players have been pushing to bring back DIBS for first-time home owners and, if introduced, will buoy sales for a lot of affordable housing developers.
“However, it appears there are a lot of concerns raised on whether it will cause future issues with default rates if these buyers do not have the right credit standing to start off with. We also think the main issues lie with the barriers of entry where first-time home buyers without sufficient credit standing are given lower margin of finance,” said Kenanga.
The report also said that the sluggish market may lead to consolidation for some property developers.
“In terms of corporate exercises like mergers and acquisitions (M&As) we believe that persistently weak valuations over 2016 may result in privatisations or mergers and we will reassess this after the first quarter of 2015 (1QCY15),” said Kenanga.
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