More affordable housing making its way to market
Kenanga Research says the property sector continues to improve based on what it sees dissipating concerns over affordability...
The overnight policy rate (OPR), which was raised many times this year to rein in soaring inflation, may be to blame for the two consecutive drops in loan application volume.
The OPR, which influences lending interest rates, was increased for the fourth time this year by the BNM's monetary policy committee (MPC).
According to a statement made by BNM on November 3, 2022, the OPR increased by an additional 25 basis points (bps), to 2.75 per cent. This is similar to OPR hikes that were previously announced on September 8, July 6, and May 11.
The fourth increase in the OPR corresponds to a 1 per cent increase.
This will have a big impact on the real estate market, said Sarkunan Subramaniam, general managing director of Knight Frank Malaysia.
Sarkunan is asking the government and BNM to halt interest rate rises since they will hurt borrowers of existing loans and dissuade buyers of real estate.
However, analysts believe that there will be another wave of OPR increases in early 2023, which might further stifle the demand for real estate.
AmBank Research predicts that MPC will raise the OPR by 25 basis points to 3 per cent in early 2023, bringing interest rates back to levels seen before the epidemic.
According to Khoo Zing Sheng, the company's stock research analyst, any further interest rate hikes will reduce customer confidence, particularly given the current inflationary environment.
This is especially true because, according to him, for every 25 basis points increase in the OPR, the instalment amount would rise by 2.2 per cent to 2.5 per cent.
OPR increase has negatively impacted buying interest, says MIDF
According to MIDF Research, the most recent BNM OPR increase in September had a detrimental impact on consumers' affordability and buying interest, as seen by the two consecutive drops in the loan application (in September and October).
Loan applications decreased by 10 per cent in October compared to the same month last year, indicating a slowdown in the demand for real estate, it said in a recent note.
"Looking ahead, we see loan applications to remain subdued as BNM hiked OPR by 25 basis points (bps) in November and may hike it further in 2023," it said.
Meanwhile, after falling by 11 per cent in September, the total loan amount granted for the purchase of real estate eased somewhat to RM20.5 billion (-1 per cent m-o-m) in October.
Loan applications are down, but there are fewer residential overhang units now.
Residential overhang units significantly decreased from 34,092 units in Q2 2022 to 29,534 units in Q3 2022, according to statistics from the National Property Information Centre (Napic).
The sharp drop in overhang units was led by Selangor (-14.9 per cent quarter-on-quarter/q-o-q), Johor (-11 per cent q-o-q), and Penang (-5 per cent q-o-q).
Johor has the highest residential overhang of 5,348 units, followed by Penang (5,222 units) and Selangor (4,386 units).
MIDF Research thinks that the decline in overhang units could be attributed to the reopening of the economy.
Following the reopening of international borders in April, it was reported that foreign purchasers, particularly those from Singapore, had returned to the local real estate market.
"In a nutshell, we see the lower property overhang units to be a slight positive to the property sector as overhang units fell below 30,000 units, which is the lowest level since Q2 2021," it said.
Given the prevailing situation, MIDF Research is maintaining a neutral stance on the property sector.
"We see a tepid outlook for loan application going forward as demand for the property could partially be dragged by rising OPR. Nevertheless, the easing of property overhang is a slight positive as a further decline in property overhang going forward may ease the concern of oversupply in the residential market," it said.
Top picks for the property sector
MIDF Research favours companies with high exposure to affordable price range properties as projects in the mid-market and affordable segments continue to see resilient demand from home buyers.
In this context, the firm favours Mah Sing Group (buy, target price (TP): 74 sen) and Glomac Bhd (buy, TP: 48 sen) due to their strategy of selling properties in an affordable price range.
The firm anticipates a higher earnings outlook for Mah Sing due to an increase in the progress billing of its ongoing projects. It also anticipates favourable new sales outlook with future new launches in its M Series.
"Demand for the M Series affordable housing remains supported by genuine home buyers," it said.
Regarding Glomac, MIDF Research is optimistic about the company's new sales outlook as a result of its planned new launches, which are expected to have a gross development value (GDV) of RM510.
"Its township projects offer affordable properties that are well received by home buyers," it said.
