LOWER interest rates and incentives may do little for property sales. During the 2008/2009 Global Financial Crisis (GFC) era when Malaysia’s overnight policy rate (OPR) rate was reduced drastically from (3.5% to 2.0%), sale of properties did not pick up immediately.
Instead, the weak economic backdrop greatly overshadowed the perks of the lower financing rate then.
“Synonymous to the previous crisis, developers under our universe have lowered their number of launches and sales targets in mid-2020,” revealed Kenanga Research analyst Marie Vaz.
“It appears that most developers are erring on the side of caution in FY2020 when it comes to new launches or targets despite easing monetary and expansionary fiscal policies,” she added.
In essence, the pre-existing oversupply situation has caused Malaysia’s year-on-year (yoy) house price index (HPI) growth to moderate throughout the years.
However, this was exacerbated by the COVID-19 pandemic which further caused the Malaysian HPI yoy growth to decline to -0.90% in 3Q 2020 (from 0.40% in 2Q 2020) and will likely continue to experience low growths in the near term unless a clear recovery emerges.
“(The) property overhang situation (is) largely the fault of residential and serviced apartments which make up 84% of the total overhang,” argued Vaz.
“Adding to the economic slowdown concern is the issue of property overhang with the residential overhang caused by high rise units (54% of residential property overhang in Malaysia), while the main price segment is priced below RM500,000 (45% of overhang units).”
Such is the case for properties located in Johor (20%), followed by Selangor (15%) and Kuala Lumpur (10%).
“This situation is only made worse by the pandemic, hence we expect product margins to be impacted as developers will be pressured to re-launch and re-brand existing products to clear sales of unsold inventory which would have been priced higher pre-COVID-19,” noted Vaz.
Given the uncertainty of a full recovery or any form of return to normalcy to pre-COVID-19 levels, Kenanga Research opined that it is tough to gauge when the sector will make a comeback.
“On one part, the easing of local lockdown restrictions is a positive sign as it will push economic recovery to the right track, but we still do caution a worsening COVID-19 situation (i.e. rising number of new cases) which may cause further setbacks to an already protracted economic recovery,” justified Vaz.
Once economic activities restart, the research house opined that it will take a few months before the property market is able to build up a momentum (i.e. pick-up in property sales) as buyers will need time to gain confidence.
“At this juncture, we believe the sector could see a mild rebound in 2H 2021 under these conditions, namely (i) improvement by way of fewer COVID-19 new daily cases (currently averaging 2,000 daily); (ii) availability of vaccination for the majority of the population; and (iii) a steady pickup in economic activity with minimal lockdown restrictions,” projected the research house.
All-in, Kenanga Research maintained its “neutral” rating on the property sector on account of its challenging structural fundamentals of affordability, oversupply, and policy issues. – Jan 6, 2021
