Property market seen to remain buyer's market in near term
Maintain neutral: Overall, the rather flattish year-to-date (YTD) performance of the Kuala Lumpur Property Index (KLPRP) could be attributed to the wait-and-see buyer sentiment as a result of swelling residential property inventory.
Nevertheless, the KLPRP managed to outperform the broader index with a marginal gain of 1.8% YTD (as of July 15, 2019) against a marginal loss of -1.1% YTD in the FBM KLCI.
The slight increase in the KLPRP was mainly contributed by gains in small-cap stocks, namely Iskandar Waterfront City Bhd (+134%), Naim Holdings Bhd (+110%) and YNH Property Bhd (+105%), which cushioned the losses in heavyweight big caps, such as S P Setia Bhd (-12.5%) and IOI Properties Group Bhd (-14.3%).
According to data released by the National Property Information Centre (Napic), unsold completed residential units in Malaysia were on the rise since the fourth quarter of 2017 (4Q2017).
Note that the rising trend of unsold completed units took a breather in 3Q17 after recording a 2.7% quarter-on-quarter (q-o-q) decline.
Meanwhile, the number of unsold completed units surpassed the 30,000 threshold since 3Q18 while the latest figures in 1Q19 show that unsold completed units were still on the rise by growing 1.9% q-o-q and 30.7% year-on-year (y-o-y).
Across all states, Johor holds the highest count of unsold completed units at 6,057 units, followed by Perak (5,890 units) and Selangor (4,785 units).
In a nutshell, we think that the swelling property inventory would result in the property market remaining a buyer’s market in the near term as property developers would have to continue their aggressive marketing efforts such as offering discounts to attract property buyers.
According to Napic, condominiums contributed significantly to the number of unsold completed units at 14,031 in 2018, making up 43% of total unsold units of 32,313 in 2018.
Meanwhile, two- to three-storey terraced houses contributed 9,273 units or 29% of unsold units in 2018.
In terms of price range of unsold completed properties, properties priced between RM500,000 and RM1 million contributed the highest number of unsold units of 8,057 in 2018 followed by properties priced between RM200,000 and RM250,000 with total unsold units of 5,915 in 2018.
Notably, unsold completed properties priced between RM500,000 and RM1 million recorded uninterrupted growth since 4Q17 from 5,612 units to 8,057 units in 4Q18, translating into a growth rate of 43.6% y-o-y.
While unsold completed properties remain escalated in 1Q19, we think that the property inventory may have a chance to ease going forward, banking on the house ownership campaign (HOC) programme.
The finance minister had announced during his Budget 2019 speech that first-time house buyers can enjoy 100% exemption on stamp duty on purchase of residential properties for the period from Jan 1, 2019 to June 30, 2019.
Subsequently, the HOC was rolled out in March to raise awareness of the stamp duty incentive.
According to data released by Bank Negara Malaysia, total applied loans for purchase of property jumped by 30% y-o-y to RM34.1 billion in May following an 8.1% y-o-y increase in April.
Total applied loans recorded three consecutive positive y-o-y growths since March.
We think that the positive growth figures could be attributed to the HOC rolled out in March as it has stimulated buying interest among property seekers who wish to enjoy the stamp duty incentive and discount offered by property developers.
Besides, the overnight policy rate cut by 25 basis points to 3% from 3.25% on May 7, 2019 may have also helped in the loan growth.
Looking ahead, we think that total applied loan growth in 2019 should remain in positive territory as the government has extended the HOC for six months, until Dec 31 this year. — MIDF Research, July 23