KUALA LUMPUR, July 15 – AmInvestment Bank Bhd has maintained its ‘neutral’ stance on the Malaysian real estate sector for the second half of 2021 (2H21), with a cautious outlook due to various economic movements and restrictions that may cause a slowdown rather than recovery expected in the area.
In a research note released today, the bank said the local real estate sector has been languishing for the past five to six years, after experiencing a recovery in mid-2013 when the home price index experienced a boom. double-digit growth.
âWe believe the most encouraging signs this year include the 5-10% YoY (YoY) developer sales growth rate in the first quarter of fiscal 2021 (Q1FY21) via online booking platforms. line, and their willingness to sacrifice margin by focusing on affordable residential segments in line with market demand.
âAnother sign is the land banking activities in privileged areas with good public infrastructure and connectivity to downtown Kuala Lumpur (KL),â he said.
The bank said it was less optimistic about sales in the second half (2H21) as sales momentum could slow from mid-May with the imposition of movement control order (MCO) 3.0, followed by a lockdown in June.
âLast year, when the first MCO lasted 1.5 months (March 18 to May 3, 2020), home sales fell 11% qoq (qoq) in Q2FY20 and then rebounded 121%. in T3FY20.
“However, we do not expect the same pace of recovery in 2H21, as economic activities are only allowed to resume during phase three, which should be in September as part of the national recovery plan. we don’t anticipate any positive earnings surprises over the next six to 12 months, âhe said.
AmInvestment Bank also noted that the average loan-to-value (LTV) ratio of outstanding mortgage loans offered by banks remained below 60% compared to 59% and 57% in 2018 and 2019, respectively.
“Banks remain cautious in residential mortgage lending to mitigate the risk of more borrowers falling into negative equity and to limit the increase in loan loss provisions,” he said.
Even though loans applied for for residential properties hit an all-time high in April 2021, the average bank approval rate fell to 34.2% from 37.4% a year ago.
âWe think this is likely due to the inability of homebuyers to qualify for a mortgage, given the high debt service ratios for newly approved loans at 43 percent.
âMeanwhile, the ratio of household debt to gross domestic product (GDP) rose to 93.3% in December 2020 from 82.9% in December 2019,â he said.
The research house has also seen excess inventory shrink, as many developers have gone from high-end to affordable over the past three to four years.
âWe are aware that affordable housing generally offers low margins which could be further reduced by increasing competition as this segment becomes more and more crowded day by day.
âGradually, the national residential surplus decreased by 8% year-on-year to reach 27,468 unsold units in the first quarter of FY21, or 18.5 billion RM against 18.9 billion RM in the first quarter of fiscal year. ‘exercise 20,’ he said.
AmInvestment Bank said its top choice for the industry is Sunway (fair value: RM2.20), given its consistent sales performance despite a weak property market, supported by attractive products in good locations and strong brand recognition resulting from very successful historical developments.
âWe also appreciate its expanding healthcare business, coupled with its good profit visibility, supported by substantial unbilled sales and an exceptional backlog,â he said.
Going forward, the research house said it could step up its call for the sector to be âoverweightedâ if banks ease lending policies on the purchase of real estate, a better-than-expected economic recovery that dramatically improves. consumer confidence and whether the government introduces additional incentives to encourage residential purchases.
Conversely, he could lower his call to “underweight” if banks tighten their lending policies or if consumer confidence deteriorates further due to an economic slowdown or the recurrence of new viral pandemics, a he added. – Bernama