AmInvestment Bank: Malaysia’s Property Market Shows Signs Of Improvement

·3-min read

Malaysia’s property market showed some encouraging signs indicating that it is improving, said AmInvestment Bank Bhd.

The most encouraging of which is developers achieving sales growth rate of between 5% and 10% year-on-year in the first quarter of 2021, through online booking platforms, reported The New Straits Times (NST).

The investment bank noted that developers also showed willingness to sacrifice margin by focusing on the affordable housing segments in line with market demand.

It also observed land banking activities within prime areas with good public infrastructure as well as connectivity to Kuala Lumpur city centre.

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However, AmInvestment Bank maintained a “neutral” stance on the property sector for the second half of the year with a cautious outlook, on the back of the various economic and movement restrictions that may lead to a slower-than-expected recovery.

It is less optimistic of property sales in H2 2021 as sales momentum may slow down from mid-May due to the enforcement of Movement Control Order (MCO) 3.0, and lockdown in June.

During the imposition of the first MCO last year, which lasted one and a half months from 18 March to 3 May, Malaysia saw home sales drop 11% quarter-on-quarter in Q2 2020, before rebounding 121% quarter-on-quarter in Q3 2020.

“We do not expect the same pace of recovery in H2 2021 as economic activities are only allowed to resume in phase three which is targeted to be in September under the National Recovery Plan, hence, we do not anticipate positive earnings surprises over the next six to 12 months,” it said as quoted by NST.

AmInvestment Bank said the overhang inventory is tapering as many developers shifted from building higher-end products to affordable units in the last three to four years.

“We are mindful that affordable housing typically commands low margins which could be crimped further by intensifying competition as this segment gets more crowded by the day. Gradually, national residential overhang has tapered down by 8% year-on-year to 27,468 unsold units in Q1 2021, translating to RM18.5 billion versus RM18.9 billion in Q1 2020,” it said.

It also revealed that the average loan-to-value (LTV) ratio of outstanding housing loans extended by banks continued to hover below 60% compared to 59% in 2018 and 57% in 2019.

Banks also remained prudent in residential property lending in order to mitigate the risk of more borrowers facing negative equity as well as limit the hike in loan loss provisions, it said.

And while housing loans hit an all-time high in April, the average approval rate of banks fell to 34.2% from 37.4 last year.

“We believe this is likely due to house buyers’ inability to qualify for a home mortgage, given the high debt service ratios for newly-approved loans at 43%.”

Looking ahead, AmInvestment Bank revealed that it may upgrade the property sector to “overweight” should banks relax lending policies on property acquisitions, a better-than-expected economic recovery is seen, and if the government rolls out additional incentives to encourage home buying.

Conversely, it may downgrade the sector to “underweight” should banks decide to tighten lending policies or consumer sentiment deteriorates further due to a recurrence of new viral pandemics or an economic downturn.

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