Long-term fundamentals of Malaysia’s property sector remain unexciting

ON paper at least, a recovery seems to be in sight for the property sector amid a faster-than-expected herd immunity (targeting 80% population fully vaccinated by early-November) and prospect of a pent-up demand with the gradual reopening of the economy.

However, UOB Kay Hian Research opined that long-term fundamentals for the real estate sector remains unexciting given growth prospects could continue to be clouded by structural issues such as unresolved supply glut and deteriorating affordability.

Moreover, the uninviting revision to the Malaysia My Second Home (MM2H) programme with stricter terms to foreign buyers such as (i) a threshold of RM1 mil fixed deposit (from RM300,000 previously); (ii) an offshore income of RM40,000/month (from RM10,000/month previously), and (iii) additional liquid assets of RM1.5 mil (from RM500,000 previously) could cast a shadow over the already subdued economy and the housing market (pricing pressure) over time.

“Yet, we expect marginal impact on the developers in the near term as foreign buyers account for less than 5% of their property sales,” projected analyst Chloe Tan Jie Ying in a property sector outlook. “We understand that the new housing minister is re-examining the new criteria imposed and we are hopeful for a positive outcome.”

Key risks for the property market at the moment include (i) a prolonged lockdown that further dampens economic outlook and consumer sentiment on big-tickets items; (ii) slower-than-expected progress billings; (iii) spike in building material cost; and (iv) impairments on receivables and completed inventories.

On the brighter side, mortgage approval rate for July grew 2 percentage points (ppt) month-on-month (mom) to 40.4% which is higher than 30.5% a year ago and close to pre-COVID-19 levels of 40-45%

“While the ongoing lockdown could create a high loan processing backlog that could artificially suppress the loan approval rate for the next one to two months, we believe it could pick up again when the economy reopens in 4Q 2021,” projected UOB Kay Hian Research.

“This came as we do not expect banks to further tighten approval standards since they have been fairly stringent even before the onset of the pandemic.”

For the upcoming Budget 2022 (to be tabled on Oct 29), the research house expects the Government to introduce more targeted measures to address the weakening affordability issue as well as to attract foreign buyers.

This could include (i) the extension of house ownership campaign; (ii) raising loan-to-value (LTV) ratio to 100% for first time home buyers; (iii) extension of loan tenure; and (iv) extension of real property gain tax (RGPT) exemption. – Sept 14, 2021

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