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Property Sector
SLVaRle coafp p nrootp leikrteyly h aecldro sfosr th>e5 byoeaarrds not
After discussion with Bank Negara Malaysia (BNM) post bank surveys, Prime Minister Datuk Seri Najib Razak said BNM may impose a limit on financing for subsequent purchases after the second property, adding "For the bona fide buyers, there will be no review of the limit. So, they can borrow up to 90%." as reported by Business Times. It was also reported that developers are dismissing the bubble threat as banks themselves were closely monitoring the situation and are have stringent creditworthiness control during loan approvals.
Interestingly, there were no mentions of the cap rate for purchasers after second property.
Though not a bubble, many view current property prices, particularly for landed residentials in key suburbs, are showing very early signs of threats or ‘frothing’. A sigh of relief… We are glad the government is not looking at a blanket imposition of the LVR cap. We had mulled earlier that If BNM implements the 80% cap on mortgage LVR for properties >RM500,000, we are likely to downgrade our sector call as property sales will slow as many developers are launching projects in this segment (refer to 30/8/10 report); Klang Valley residential properties >RM500,000 make up close to 50% of transaction value over the last 3 reported quarters by NAPIC.
Still room for investment in homes; property investment is favored in light of low interest rates and lack of investment alternatives. However, sales levels for many developers may stagnate in the next year, if the mentioned measure is imposed. Much of the recent landed residential launches are priced higher than RM500,000 for developers like SP Setia, Mah Sing and IJM Land resulting in extraordinary sales achieved for the year.
It is undeniable to see slight shrinkage in pool of buyers of this segment and developers will need to beef up marketing efforts to maintain similar sales levels. Even though banks are already prudent when assessing ‘investment related’ purchase of homes, the measure may cause banks to further raise the minimum requirements to qualify for loans.
But a healthy measure. We think it is healthy as it curbs some degree of speculative activities, which has cause primary residential prices to escalate. It is also healthy as developers may need to focus on widening its product offering to the low to mid end housing segment or commercial segment to increase sales.
Still a Trading BUY for now. Much of the mentioned developers sales have been locked-in for the year, and will be able to provide 20%-25% YoY earnings growth for the next 1-2 years. However, we are still wary of other negative headwinds from unfavorable government policies including 1) reintroduction of progressive RPGT of 0%-30% depending on holding period 2) cessation of interest absorption schemes for all or selected housing segments.
We also believe these concerns will continue to cap share price performance, with exception of developers that provide strong news flow from unique projects and landbanking;
e.g. SP Setia’s KL Eco City will benefit from the MRT project.
No changes to our top BUY calls for the moment. We are in the midst of reviewing our sector and company calls; key risks to our calls are the upcoming Budget 2011 which may very well see reintroduction of progressive RPGT.
Currently, our BUY calls are largely premised on strong sales achieved for the following developers who are well positioned with iconic and news grabbing projects (e.g. SP Setia (BUY; TP: RM4.78) KL Eco City and IJM Land (BUY; TP: RM2.80) The Light) or aggressive landbanking (e.g. Mah Sing Group; BUY; TP: RM2.20). We continue to maintain Trading BUY on Hunza Properties (TP: RM1.76) and Eastern & Oriental (TP: RM1.26).
SLVaRle coafp p nrootp leikrteyly h aecldro sfosr th>e5 byoeaarrds not
After discussion with Bank Negara Malaysia (BNM) post bank surveys, Prime Minister Datuk Seri Najib Razak said BNM may impose a limit on financing for subsequent purchases after the second property, adding "For the bona fide buyers, there will be no review of the limit. So, they can borrow up to 90%." as reported by Business Times. It was also reported that developers are dismissing the bubble threat as banks themselves were closely monitoring the situation and are have stringent creditworthiness control during loan approvals.
Interestingly, there were no mentions of the cap rate for purchasers after second property.
Though not a bubble, many view current property prices, particularly for landed residentials in key suburbs, are showing very early signs of threats or ‘frothing’. A sigh of relief… We are glad the government is not looking at a blanket imposition of the LVR cap. We had mulled earlier that If BNM implements the 80% cap on mortgage LVR for properties >RM500,000, we are likely to downgrade our sector call as property sales will slow as many developers are launching projects in this segment (refer to 30/8/10 report); Klang Valley residential properties >RM500,000 make up close to 50% of transaction value over the last 3 reported quarters by NAPIC.
Still room for investment in homes; property investment is favored in light of low interest rates and lack of investment alternatives. However, sales levels for many developers may stagnate in the next year, if the mentioned measure is imposed. Much of the recent landed residential launches are priced higher than RM500,000 for developers like SP Setia, Mah Sing and IJM Land resulting in extraordinary sales achieved for the year.
It is undeniable to see slight shrinkage in pool of buyers of this segment and developers will need to beef up marketing efforts to maintain similar sales levels. Even though banks are already prudent when assessing ‘investment related’ purchase of homes, the measure may cause banks to further raise the minimum requirements to qualify for loans.
But a healthy measure. We think it is healthy as it curbs some degree of speculative activities, which has cause primary residential prices to escalate. It is also healthy as developers may need to focus on widening its product offering to the low to mid end housing segment or commercial segment to increase sales.
Still a Trading BUY for now. Much of the mentioned developers sales have been locked-in for the year, and will be able to provide 20%-25% YoY earnings growth for the next 1-2 years. However, we are still wary of other negative headwinds from unfavorable government policies including 1) reintroduction of progressive RPGT of 0%-30% depending on holding period 2) cessation of interest absorption schemes for all or selected housing segments.
We also believe these concerns will continue to cap share price performance, with exception of developers that provide strong news flow from unique projects and landbanking;
e.g. SP Setia’s KL Eco City will benefit from the MRT project.
No changes to our top BUY calls for the moment. We are in the midst of reviewing our sector and company calls; key risks to our calls are the upcoming Budget 2011 which may very well see reintroduction of progressive RPGT.
Currently, our BUY calls are largely premised on strong sales achieved for the following developers who are well positioned with iconic and news grabbing projects (e.g. SP Setia (BUY; TP: RM4.78) KL Eco City and IJM Land (BUY; TP: RM2.80) The Light) or aggressive landbanking (e.g. Mah Sing Group; BUY; TP: RM2.20). We continue to maintain Trading BUY on Hunza Properties (TP: RM1.76) and Eastern & Oriental (TP: RM1.26).
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