Image credit: The Edge Markets
PETALING JAYA: The Malaysian property market is on track for a much-needed recovery in 2022, albeit a bumpy one, as persistent headwinds could still dampen growth within the sector.
RHB Investment Bank in a report yesterday said it was maintaining a cautious view on the property market for 2022.
“Despite an encouraging pick-up in demand for property in 2021, we think there are still some headwinds ahead, which may potentially hinder the continued recovery in property sales as well as earnings growth.
“These include a resurgence in Covid-19 daily infections or the emergence of new variants, building material prices staying at high levels and the potential overhang among property stocks ahead of the general election.”
Additionally, the research house said the low interest rate cycle has fuelled property transaction volumes, but not prices.
“As interest rates have remained low over the past two to three years, the real estate sector in Malaysia did not experience any impact of asset reflation.
“Compared to the past, the interest rate cycle in 2012 and 2013 saw the house price index (HPI) rising between 11% and 13% year-on-year during the period.”
RHB noted that HPI growth had, however, eased from 3.3% in 2018 to -0.7% in the third quarter of 2021.
“We believe this was largely due to persistent structural issues, whereby the property industry has been experiencing a drawn-out oversupply situation since 2016.
“Therefore, this, to a large extent, has capped the prospects of property price growth.”
Meanwhile, UOB Kay Hian noted that the property sector usually underperformed during rate hikes.
“Historically, residential properties’ transacted volume has trended in tandem with mortgage approval value. Our backtesting suggested that mortgage approval values were lower after interest rate hikes.”
The research house observed that this usually led to an underperformance of the property sector, which had fallen behind the performance of the FBM KLCI after several rate hikes between November 2005 and April 2006.
Similarly, UOB Kay Hian said a similar trend was observed following rate hikes between April 2010 and April 2011, post-Global Financial Crisis.
“While we have projected one rate hike in the third quarter of 2022 (to 2%), we believe the market could start pricing in more rate hikes thereafter, in tandem with the United States bond tapering effect.
“That said, the sector could underperform as consumer sentiment towards big-ticket items may fade.”
Separately, Savills Malaysia Sdn Bhd group managing director Datuk Paul Khong said he hoped to see residential activities improve in 2022, despite transaction prices remaining soft.
“Bank Negara may increase the overnight policy rate in 2022 to combat inflation. However, the interest rate at the moment is expected to remain favourable.
“This year will continue to be challenging in continuation from 2021, as there is not much given in Budget 2022, except for the real property gains tax (RPGT) back to 0% and 5% for both individuals and companies, respectively.”
An analyst with a local bank-backed brokerage said the discontinuation of the Home Ownership Campaign (HOC) in 2022 could also have an impact on developers’ sales.
“The HOC, which ended on Dec 31, 2021, did help to buffer the impact of the pandemic on developers in the last two years.”
However, he pointed out that many were not able to benefit from the HOC last year due to the numerous lockdowns, which affected business transactions.
“Many were hopeful that in Budget 2022, the HOC would be extended for at least another six months. Developers will just have to work harder and smarter to push sales this year.”
The government kicked off the HOC in January 2019 to address the overhang situation in the country.
The campaign, which was intended for six months, was extended for a year. It generated sales totalling RM23.2bil in 2019, surpassing the government’s initial target of RM17bil.
The government reintroduced the HOC in June 2020 under the Penjana initiative to boost the property market after it was adversely affected by the Covid-19 pandemic.
Knight Frank Malaysia deputy managing director Keith Ooi, meanwhile, said the overall outlook for the residential property market remained cautiously optimistic, moving into the first quarter of 2022.
He said this would be supported by proper product positioning and various property-related incentives under the multiple stimulus packages.
Ooi added that the recently concluded HOC, developer-led marketing campaigns and low-interest-rate environment would have helped to spur sales between the final quarter of 2021 and into the first quarter of 2022.
“The abolishment of the RPGT for property disposals in the sixth and subsequent years of ownership is long-awaited.
“This augurs well especially for long-term property owners who wish to dispose of their existing properties for purposes of an upgrade, as well as for empty-nesters looking to downsize.”
Ooi said the residential market would continue to self-correct amid challenges brought on by the Covid-19 pandemic.
“In the short to mid-term, more direct measures, however, may be required to revitalise and sustain the slow growth momentum of the property sector, as the emergence of new Covid variants continues to pose downside risks.”
Separately, RHB has cautioned that there could be a potential sector overhang due to the upcoming election.
“Taking a cue from the historical trend, investor interest in the property sector is usually lukewarm and the performance of most property stocks is typically lacklustre six months prior to an election, possibly due to the uncertain outlook post-election.
“As the next general election is due by July 2023, we think speculation would be rife in 2022 on the timing of the event.”
According to the National Property Information Centre (Napic), there were 30,290 unsold completed residential units (overhang) worth RM19.75bil as at September 2021, compared with 30,926 units worth RM19.99bil in the previous corresponding period.
Of the 30,290 overhang units, 18,829 units (or 62.2%) comprised high-rise units, while 6,803 units (22.5%) consisted of terrace houses.
The bulk of the overhang units were focused in Johor (6,441 units), Penang (4,638 units), Kuala Lumpur (3,863 units) and Selangor (3,376 units).
Napic said 33.7% of the overhang units were units ranging between RM500,000 and RM1mil, while 28.4% comprised units ranging between RM300,000 and RM500,000.
Units below RM300,000 comprised 25.5% of the total overhang, while units above RM1mil (12.4%) consisted the remaining unsold units during the period under review.
Source: https://www.thestar.com.my/business/business-news/2022/01/07/recovery-seen-but-at-a-slower-pace