The anticipated goods and services tax (GST) and the hike in the overnight policy rate (OPR) will impact housing affordability and sales, according to Maybank IB Research.
It said the benchmark OPR of 3% was expected to rise 50 bps (basis points) to 3.5% following the central bank’s monetary policy committee meeting in early July.
The report said a 50bps increase in the mortgage rate could lead to a 6.8% jump in monthly instalments based on a base lending rate (BLR) minus 2.4% for a 35-year loan.
“This would impact affordability and investment decisions for new purchases,” it said.
The report also said the housing affordability index has been trending down since 2009 due to hikes in the BLR to 6.6%. The BLR was set at 5.6% between 2009 and 2011. Other reasons for the index to trend downwards include the spike in property prices without a significant rise in income.
The report said that with most developers already doing GST-related repricing and re-costing exercises ahead of the April 2015 timeline and the anticipated higher interest rates, the housing affordability index could decline further. This would lead to a decline in property sales.
“While developers will be able to pass on the upcoming GST to buyers of non-residential properties, they may have to absorb some of the GST impact for residential properties that were sold during/before 2013 and which remain uncompleted on April 2015.
“We believe a majority of the sales secured in the last one year have not taken into account the implementation of GST,” the analyst said.
Margins are also likely to compress in the coming period due to the offering of more non-cash incentives to attract property buyers.
On top of that, the report said higher labour costs and higher transportation costs after last September’s fuel price hike were expected to eat into margins.
Malaysia’s high household debt amounted to RM854bil last year, accounting for 86.8% of nominal gross domestic product (GDP).
Maybank IB said investors felt Eco World Development might be the new leader for the property sector given the support by former S P Setia staff and its expansive land bank worth RM43bil in gross developmental value.
Meanwhile, Batu Kawan in Penang was introduced as a new property hotspot in Malaysia. It stands to benefit from the new second Penang bridge and better control on land supply from the state government.
“It is unlike Iskandar Malaysia, which relies on the bilateral relations between Malaysia and Singapore,” the research house said.
Maybank IB observed that the share price of land owners Tambun Indah, Malton and Global Oriental rose 14%, 19% and 24%, respectively, benefiting from interest in Batu Kawan.
Overall, the research house maintained a “neutral” call on the property sector, citing that foreigners were more focused on the property sector in other emerging markets.
