KUALA LUMPUR: CIMB Equities Research is retaining its Overweight call on property sector with Eco World
as its top pick which will also benefit from the spillover from mass marketing housing projects.
It said on Friday if the Budget 2017
introduces measures that help first-time homebuyers, developers with sizeable exposure to mass market housing projects (LBS Bina Bhd, Mah Sing Group Bhd
and UOA Development) could benefit.
“The benefits could also spill over to developers that focus on affluent projects, such as Eco World, by boosting the overall sentiment in the property market. Eco World’s share price performance has lagged behind its peers YTD. It is our top pick as it offers the highest share price upside among the developers in our coverage,” it said.
CIMB Research said the government is reportedly looking into a potential scheme to assist first-time homebuyers to secure loans in Budget 2017. Property developers have also put forth proposals to help first-time homebuyers.
“Our analysis reveals that a higher cap on the withdrawal of EPF savings for home purchases could help the homebuyers and bring other social benefits. Maintain Overweight, with easing measures to be a potential re-rating catalyst for property stock prices. A key downside risk is further macroeconomic headwinds,” it said.
To recap, early this month, the media reported that the government would announce a scheme to help first-time home buyers secure mortgage financing in Budget 2017.
Since then, property developers have proposed many measures, ranging from higher loan-to-value ratios (LTV) and higher debt-service ratios to the reinstatement of the developer’s interest-bearing scheme (DIBS) and a higher cap on the withdrawal of EPF savings for home purchases, for inclusion in the government budget that will be tabled on Oct 21.
“We believe that more lenient lending criteria, such as higher LTV and the extension of the maximum mortgage tenure from 35 to 40 years, may be inadequate to revive the slow property market as banks are unlikely to ease their lending practices.
“Already, BNM has rejected calls for longer mortgage tenures. A higher LTV will help the homebuyers who cannot afford the initial down payment but its impact on primary sales could be small as many developers are already offering packages that lower the upfront payment.
“Among all the proposals that have been put forth to help first-time homebuyers, we think a higher cap on the withdrawal of savings from EPF, the government-run retirement fund for all private and non-pensionable government employees, holds the most promise.
“However, we believe the cap needs to be raised to 60-80% (from 30% currently) for the impact to be significant. Also, other safeguards must be introduced to protect EPF members’ retirement savings and curb the use of withdrawals for speculative purchases,” it said.
In 2015, 89,071 members withdrew their EPF savings to finance purchases of their first homes. The average withdrawal amount was RM23,676. Assuming that this equates to 30% of the average savings of EPF members, raising the cap to 80% could raise the withdrawal amount by RM39,460 to RM63,136. The additional withdrawal is equivalent to 13% of the average transaction price of residential property in 2015.
“While the depletion of EPF savings could be detrimental to retirement life, we believe the associated risks of lower EPF savings could be mitigated through several safeguards, such as restricting the high withdrawal cap to those who are young and who therefore have many years of remaining working life (i.e. aged 35 or below), requiring the homes purchased with EPF savings to be owner-occupied and imposing a maximum debt-service ratio of 60-70% on the borrowers to prevent over-leveraging.
“Housing wealth currently forms the largest share of the middle class’s net worth. Lower EPF savings could be more than offset by accumulation of housing wealth in the long run.
“Also, home loans can be insured and the insurance will settle outstanding loans in the event that the homebuyer loses his capability to work. A higher cap on EPF savings withdrawals coupled with mandatory housing loan insurance is arguably a safer investment portfolio compared to a standalone EPF savings account, in our view,” it said.