Property sector unintended casualty of BNM’s rate hike frenzy

 

Rising housing loan rates have negatively impacted buying interest and affordability of buyers.

PETALING JAYA: Malaysia’s property sector appears to have fallen victim to Bank Negara Malaysia’s (BNM) move to hike the overnight policy rate (OPR) multiple times this year to tame surging inflation.

According to BNM data, loan applications for purchase of property fell by 7.3% month-on-month (m-o-m) to RM43.95 billion in October, following a decline of 11% m-o-m in September.

“We think that the two consecutive declines in loan application could be due to the OPR hike by BNM in September which negatively impacted buying interest and affordability of buyers,” said MIDF Research in a recent note.

On a year-on-year basis, loan application eased by 10% in October after the positive growth in the previous three months, signalling demand for property is taking a breather, it said.

“Looking ahead, we see loan applications ro remain subdued as BNM hiked OPR by 25 basis points (bps) in November and may hike it further in 2023,” it said.

Meanwhile, total loan approved for purchase of property eased marginally to RM20.5 billion (-1% m-o-m) in October after a 11% decline in September.

Malaysians have borne the brunt of four rate hikes this year as the central bank sought to rein in inflation and stabilise the depreciating ringgit.

On Nov 3, BNM increased the OPR by 25 basis points (bps) to 2.75% at its final monetary policy meeting for the year. All four increases have been by 25 bps.

A number of analysts and economists expect BNM to hike the OPR rate one or two more times in the first half of 2023 before easing, so this may continue to dampen demand for property.

Easing property overhang

However, it is not all gloom and doom in the property segment. According to data released by the National Property Information Centre (Napic), residential overhang units eased significantly from 34,092 units in Q2 2022 to 29,534 units in Q3 2022.

The sharp drop in overhang units was led by Selangor (-14.9 % quarter-on-quarter/q-o-q), Johor (-11% q-o-q) and Penang (-5% q-o-q).

MIDF Research noted that Johor has the highest residential overhang of 5,348 units, followed by Penang (5,222 units) and Selangor (4,386 units).

The decline in overhang units could be attributed to reopening of the economy. Besides, foreign buyers such as from Singapore returned to the local property market following the reopening of international borders in April, it said.

“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.”

Neutral stance

Given the prevailing situation, MIDF Research is maintaining a neutral stance on the property sector.

“We seea tepid outlook for loan application going forward as demand for property could partially be dragged by rising OPR.

“Nevertheless, the easing of property overhang is a slight positive as further decline in property overhang going forward may ease concern of oversupply in the residential market.”

On top picks for the sector, the research house 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, we like Mah Sing Group (buy, target price (TP): 74 sen) and Glomac Bhd (buy, TP: 48 sen) due to their strategy of selling properties in affordable price range,” it said.

Mah Sing and Glomac ended at 60 sen and 32 sen respectively at the close of trade on Bursa Malaysia on Dec 14.

The positives for Mah Sing include:

• Better earnings outlook due to pick up in progress billing of its ongoing projects;
• New sales outlook to remain positive with upcoming new launches in its M Series; and
• Demand for M Series affordable housing remains supported by genuine home buyers.

It likes Glomac for its:

• Positive new sales outlook on the back of planned new launches with gross development value (GDV) of RM510 million in H2 FY2023;
• Township projects which offer affordable properties that are well received by home buyers; and
• Undemanding valuation, trading at steep discount of 78% to latest net tangible assets of RM1.51 per share. - FMT