Question marks remain over the sustainability of property demand in Malaysia, with property prices outpacing income growth, interest rates inching up and the upcoming GST expected to affect prices, according to Maybank IB Research.
“Already, the affordability index has been trending down since 2009 after the hikes in the BLR (to 6.6%, from 5.6% over 2009-2011) and higher property prices (+12.5% CAGR vs income growth of +6% between 2010-2013). This would impact investment decisions for new purchases and could eventually lead to a decline in property sales.
“Also, higher interest rates – we expect a 25-50bp rise in the benchmark OPR in the second half of 2014 – and the GST implementation in April 2015 will hit on affordability.
“We remain cautious on the sustainability of property demand,” the research house stressed.
“Our discussions with the bankers also revealed that the loan rejection rate has been as high as 40-50% nowadays (depending on product types; affordable housing dominated by first-time buyers has lower loan rejection rate) compared to 10-20% a year ago,” it noted.
Maybank IB Research also pointed out that household debt had reached a high of 86.8% of nominal GDP at the end of 2013, and could possibly climb to 88% by the end of this year.
It said a survey it carried out a recent property fair showed 64% of respondents already had at least one property in hand and were looking to buy new properties for investment. And this was despite the cooling measures introduced during Budget 2014 in October last year.
“As such, there is a risk that Bank Negara may further rein in household debt expansion and curb speculative demand. With many potential buyers still looking to buy properties for investment purposes, further tightening measures could negatively hit demand, and in greater force,” it warned.
According to the research house, demands for landed property under RM1mil remained firm but pointed out that discussions with property agents revealed a significant slowdown in demand for high-rise luxury properties.
It cited as example WCT’s Skyz Jelutong in Shah Alam (RM650 psf) which has only sold 40% since its preview in Nov 2013, as well as Guocoland’s DC Residency in Damansara Heights RM1,600-1,700psf), which has only been 30-40% booked since its private preview in mid-2013.
Maybank IB Research said it remained Neutral on the property sector, saying key risks included further tightening measures, interest rate hikes.
“We are more upbeat on developers who are offering well-priced products in well connected locations that would continue to sell well. Our top pick is Eco World. Another Buy is Glomac,” it said.
