NEW STRAITS TIMES. 8TH FEBRUARY: All is not lost for the local property market, which has begun to catch up following various good occurrences in the country and overseas, beginning with the reopening of China’s border.
The Malaysian ringgit is strengthening, and the time and procedures for foreign labour intake approval are being shortened and eased.
Furthermore, following four rises last year, Bank Negara Malaysia (BNM) has paused interest rate hikes.
Perhaps the most appealing for the sector is BNM’s decision to postpone rate hikes, which it announced on January 19.
“As we have highlighted previously, BNM’s rate hike cycle post-pandemic is not unexpected by the market and home buyers, given that historically the OPR (overnight policy rate) had always hovered around the mean range of 3 to 3.25 per cent and as such, home buyers are unlikely to factor in a low rate environment as their base case in their home purchasing decision.
“However, the rate hike pause this time is consequential in the sense that it signals a deceleration in the rate hike pace and increased probability that the terminal OPR rate may end at the lower range of 3 per cent, instead of 3.25 per cent,” said Hong Leong Investment Bank (HLIB Research) analyst Tan Kai Shuen.
Tan believes this bodes well for overall housing demand, particularly for affordable to mid-range properties by companies such as Mah Sing, Matrix, and OSK Property, where purchasers are more interest rate sensitive.
The rate hike pause, on the other hand, provided much-needed breathing room for developers with ringgit-denominated debt. This includes SP Setia, which has a net gearing of 1.01x as of September 30, 2022, according to him.
Regarding China’s border reopening, the investment bank said in its September 2022 research that China will be the wild card that supports Malaysia’s economy and cushions the impact of a slowdown in Western economies.
“This has played out with China’s easing of Covid restrictions and its border reopening on Jan 8. China’s economic revival from its reopening measures should help its beleaguered property sector which was hit by the government’s squeeze on new financing for developers, pandemic repercussions, and mortgage boycotts by owners of unfinished homes.
“Recently, the Chinese government also pledged support for first-time home buyers via easing of mortgage rates and lower down payments. In this regard, IOI Property Group is well positioned to capture this recovery in home demand,” Tan said.
Furthermore, the reopening of China’s borders may rekindle Chinese interest in Malaysian real estate. This will benefit high-end developers with projects in Kuala Lumpur, where the minimum price for foreign buyers is set at RM1 million.
Tan believes that the ringgit’s rising versus the US dollar, from a peak of 4.75 on November 4, 2022, to 4.26 on February 3, 2023, will enhance consumer attitude and spending via the wealth effect, as proposed by behavioural economic theory.
“While there is no change in income level and cost of homes in local currency, consumers nonetheless feel more financially secured and confident of their wealth as their wealth appreciated against the USD,” he said.
Meanwhile, the speed up in foreign labour intake will benefit the entire industry, which has been severely hurt by the labour shortage crisis.
Datuk Seri Saifuddin Nasution Ismail, Minister of Home Affairs, has announced that the country will temporarily relax its prohibitions on recruiting foreign labour for the manufacturing, construction, plantations, agricultural, and food and beverage industries.
Some of the important steps include processing and accepting applications within three working days, as well as abolishing quotas and employment prerequisites for recruiting from a list of 15 source nations.
Developers with significant unbilled sales in Malaysia, such as Mah Sing, Matrix Concept, Sime Darby Property, and UEM Sunrise, may see earnings increase this year as site progress and earnings recognition accelerate.
Certain sweet spots in the sector, such as low to mid-range residences in the Klang Valley region and affordable landed townships on the outskirts of Klang Valley, should see more resilient demand.
“Both of these segments will benefit from the growing middle-income segment in the Klang Valley region,” Tan said.