Malaysian developers switch to affordable housing, bank says

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The property market is starting to see a tapering down in overhang inventory levels, as developers switch to affordable houses.

The Malaysian property market is starting to see a tapering down in overhang inventory levels, as developers switch to affordable houses.

AmInvestment Bank said the national residential overhang had tapered down by eight per cent year-on-year to 27,468 unsold units in the first quarter of 2021, translating into 18.5 billion ringgit ($4.36 billion) compared with 18.9 billion in the previous corresponding period.

It said this has been mainly due to developers moving from high-end products to affordable ones.

“We are mindful that affordable housing typically commands low margins which could be crimped further by intensifying competition, as this segment gets more crowded by the day.

“However, we think that companies under our coverage are established to compete, given their savvy management teams and healthy balance sheet, with net gearing ratios of 30 per cent to 59 per cent.”

The research house noted that developers such as Mah Sing Group Bhd and Lagenda Properties Bhd are in a net cash position.

“Hence, they have the ability to secure strategic land banks with a reasonable cost-to-gross development value ratio of between 10 per cent and 20 per cent.

“Year-to-date, Mah Sing and UEM Sunrise have each acquired two landbanks in the Klang Valley while Sunway secured one.”

Separately, AmInvestment Bank said the loan-to-value (LTV) ratio offered by banks has been low.

“Based on Bank Negara’s second half 2020 financial stability review, the average LTV ratio of outstanding housing loans remained below 60 per cent [compared with 59 per cent and 57 per cent in 2018 and 2019 respectively].

“Banks remain prudent in residential property lending to mitigate the risk of more borrowers falling into negative equity and limit the increase in loan loss provisions.”

Even though loans applied for residential properties reached an all-time high in April 2021, reflecting improved consumer sentiment, AmInvestment Bank said the average approval rates of banks slid to only 34.2 per cent from 37.4 per cent a year ago.

“We believe this is likely due to the house buyers’ inability to qualify for a home mortgage given high debt service ratio [DSR] for newly-approved loans at 43 per cent, while the household debt-to-gross domestic product ratio has risen to 93.3 per cent as at December 2020 from 82.9 per cent in December 2019.”

The DSR is calculated by dividing applicants’ debt service obligations by their incomes to assess borrowers’ risk profile.

Most banks observe a cap of 43 per cent for the low-income group and 71 per cent for the middle-to-high income borrowers.

“Potential house buyers may have little room left to take on a home mortgage due to their existing debt service commitments [arising from outstanding study, car or personal loans] while their incomes have not grown sufficiently during the pandemic.

“This was exacerbated by the softer job market as reflected in the still elevated unemployment rate of 4.7 per cent from January to May 2021,” the research house pointed out.

THE STAR (MALAYSIA)/ASIA NEWS NETWORK