There could be difficult times ahead for property developers who are looking to launch this year. Investors' sentiment is expected to be overcast by risk of Overnight Policy Rate (OPR) hikes, says Kenanga Research.
"Our in-house views thatover2018, there will be two OPR hikes (25bps each) from 3.00 per cent currently, which marks the first time since 2010-2011 that OPR is expected to be hiked by two times within a 12-month period.
"A 50 bps increase in average lending rates (AVL) will result in a five to six per cent increase in monthly mortgage payments (assuming 90 per cent margin of financing) and we think the effects will be felt by the market" said analyst, Sarah Lim.
She said in addition to cost-push inflationary effects on replacement cost, the OPR hike means that housing affordability might deteriorate slightly unless banks are willing to absorb further margin compressions from lower lending rates.
"It also means that developers are likely to pursue smaller built-ups, which may not be liveable in the long run, while supply in this segment is picking up pace very quickly" said Lim.
Data from the National Property Information Centre (NAPIC) showed there were 130,690 unsold residential properties in Malaysia during the first quarter of last year.
According to the report, 83 per cent of the total unsold units were properties priced above RM250,000 each. Majority of the units were priced above RM500,000.
IMPROVING LOAN INDICATORS NOT FULLY BENEFITING DEVELOPERS Lim said that property stocks were gaining traction with investors over the first half of last year on the back of improving property loan indicators, which continue to show positive improvement.
"However, as highlighted in our previous strategy reports, it has not translated to sharp increases
in our universe of developer's headline sales growth. We believe it is largely due to competition from non-listed developers which are able to roll out a lot of mass housing projects and federal/state government affordable housing supplies. Investors interests in the sector waned in the second half of last year.â€
While mass market housing could be the focus this year, Lim said it is worthwhile noting that mass housing market buyers were more sensitive to changes in affordability ratios She said in such situations, buyers were likely to become more selective with their purchases.
Bigger developers may have a better chance of grabbing market share given the strong branding and sales teams to aide with conversion of sales to Sales&Purchase Agreements (SPAs).
"We believe the government's current stance on the freeze on approval for luxury projects with units above RM1 million each would bode well for sizeable or reputable developers as they have stronger market research capabilities and are able to draw a wider set of buyers, investors or partners to catalyse these projects" said Lim.
She expects policies to continue to be pro-mass housing, including more "rent-to-ownâ€ product offerings.
LBS BINA REMAINS UPBEAT ON SALES Some analysts believe the challenging times ahead could dampen developers' sales target but LBS Bina Group Bhd is bullish of achieving its targeted sales of RM1.8 billion this year.
Speaking to reporters at its 2018 outlook and media briefing last week, LBS Bina group managing director Tan Sri Lim Hock San said the group was expecting more demand from the affordable housing segment.
The developer plans to launch eight new projects this year with total gross development value of RM2.19 billion.
Lim said from the total units to be launched under the eight projects, 3,139 would consist of affordable homes priced below RM500,000, representing 60 per cent of the sales target.
LBS Bina achieved RM1.43 billion in sales for last year, up 15 per cent year-on-year from 2016, he said.
Projects within the Klang Valley were the largest contributors.