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Tuesday November 22, 2011

Property sector to feel impact from tighter lending, slower sales

PETALING JAYA: The winds buffeting the property industry may become stronger with the introduction of guidelines by Bank Negara to rein in household debt which becomes effective from Jan 1.

RHB Research Institute Sdn Bhd analyst Loong Kok Wen said in a report that these regulations would have an impact on the industry with the high-end segment of the market being more sensitive to regulatory tightening as financing availability gets narrower.

She said the stricter lending rules were likely to result in a 14%-37% decrease in affordability with the impact to be felt from the first half of next year.

The central bank issued guidelines last week in a move to clarify lending practices among financial service providers which included the requirement by banks to make appropriate assessment into prospective borrowers' income after statutory deductions and consider all outstanding debt obligations.

Loong said that although banks were already assessing potential borrowers' net salary in their evaluation process, lending would likely be tighten on home mortgages going forward on worries of rising household debt to gross domestic product (GDP) levels.

She said fundamentals in the market remained weak with the prolonged sovereign debt crisis in the European Union overshadowing the global economic outlook.

“From our recent conversation with developers, potential buyers are indeed taking longer time in their property buying decisions than previously, especially on premium properties. Mass housing will continue to fare better due to pent-up demand,” Loong said.

She added that property sales were likely to taper off (after a 21% growth in 2010) with a growth of 0% to 5% in 2012, given that sales were largely driven by GDP growth.

Loong said the house was maintaining an “underweight” and was still cautious on property stocks although they have recovered in tandem with the temporary rebound in the equity market.

“Our stock pick is selective,” she said, adding that UEM Land was recently upgraded to a “trading buy” and Mah Sing Group Bhd to “market perform”.

Loong expects UEM Land Holdings Bhd to benefit from more oil and gas-related news flow in Iskandar, while IJM Land Bhd's share price could be supported by a potential merger and acquisition angle following the recent offer made by Permodalan Nasional Bhd to SP Setia Bhd.

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