Property outlook to remain subdued as lending stays tight
Property developers are expected to register another year of slow performance in 2017 amid a lack of catalysts for the segment, as cooling measures introduced by the central bank to rein in speculation continue to be the main hurdle for property companies.
Kenanga Investment Bank Bhd analyst Sarah Lim said property developers are not expected to register significantly better sales in 2017, with no apparent improvement on the banking front.
“In general, in terms of developers’ primary sales, we don’t expect there to be significant improvement in 2017 compared to 2016, one of the reasons being that we don’t foresee any major improvement in bank loan growth,” she told The Edge Financial Daily.
She said concerns still revolve around the tighter liquidity situation, while Bank Negara Malaysia would either maintain or further cut the overnight policy rate amid uncertainties over the global economy, which means that the subdued situation will not change anytime soon.
The central bank reduced the key rate by 25 basis points to 3% during the Monetary Policy Committee meeting in July, as it cited “increasing signs of moderating growth momentum in the major economies” and increased downside risks following the UK’s Brexit vote.
“The loan-to-deposit ratio (LDR) is still very high and until we see some improvement in the LDR, I think the performance of banks would not be significantly different from 2016, which means that there won’t be much changes for developers next year,” said Sarah.
In November, Bloomberg reported that Malaysian banks are turning cautious about lending amid sell-offs in the ringgit and the surge in volatility after the US presidential election. While banks are wary of lending more to households — already one of the most indebted in Asia — risks to global growth are also crimping Malaysian companies’ appetite to borrow and spend, said the news agency.
Meanwhile, Sarah said developers will still be focusing on affordable units, but added that more land deals are expected to come up next year, after a quiet deal landscape in 2016.
“The land deal landscape has been very quiet this year. We expect to see more landbanking deals coming up as prices are coming to a softening point. In the last five years, land prices have gone up quite a bit, so we expect bit more [deals] next year, compared to 2015 and 2016.
“The emphasis will still be on township land banks and affordable projects,” she said.
Similarly, MIDF Research analyst Alan Lim said property developers’ sales next year, at best, would be similar to 2016 levels, with the spotlight still on the affordable housing segment.
“This is due to the ongoing weakness seen in consumer confidence. Note that the latest publication from the Malaysian Institute of Economic Research shows that [the] 3Q16 (third quarter of 2016) consumer sentiment index (CSI) weakened to 73.6 from 2Q16’s 78.5,” he said.
Alan added that while household income had improved, the employment and financial outlook is still uninspiring.
“We believe the data suggests that [the] demand outlook for potential property buyers remains soft in 2017, and they are likely to remain price-sensitive,” he said.
However, Affin Hwang Investment Bank Bhd analyst Loong Chee Wei holds a contrary view. He believes developers could see better sales in 2017, after two consecutive years of contraction in sales volume amid tighter lending and generally dampened consumer sentiment.
He said the demand build-up — stemming from consumers delaying their big-ticket purchases — will drive a recovery in transactions next year.
“Consumers were hit by the goods and services tax implementation in April last year, so there were concerns over higher cost of living, which led to consumers holding off their purchases.
“We think property developers’ earnings could improve next year, amid more units launched that are priced below RM700,000, which should cater to the anticipated pent-up demand,” he said.
Loong noted that property developers across the board accelerated launches in the second half of 2016, which supported the better sales reported in 3Q16 and in the beginning of 4Q16.
However, he said the key challenge to the property segment remains the tight lending policy.
Read source: TheEdgeProperty.com.my
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