Sime Darby Property's Elmina Five launch was well received.
KUALA LUMPUR: Sime Darby Property
(Add, TP: RM1.34) remains CIMB Equities Research’s top pick in the property sector as it has shown continuous improvement in its property development division and new property sales since its demerger in November 2017.
“We believe the group’s healthy balance sheet and massive land bank are advantages in addressing any change in future product demand,” it said on Wednesday.
CIMB Research issued the report after the Monetary Policy Committee of Bank Negara Malaysia lowered the Overnight Policy Rate (OPR) by 25bp to 3%.
“Based on historical trends, this is likely to result in banks lowering their indicative lending rates. We estimate that every 25bp reduction in borrowing rate would reduce the monthly instalment for mortgage loans by 1-3%, depending on the loan tenure,” it said.
It pointed out homebuyers’ purchasing power will likely increase in tandem but it expects the upside to be limited, especially for properties in the affordable range of RM300,000 to RM500,000.
“Our sensitivity analysis shows that every 25bp cut in borrowing rate would reduce the monthly housing loan instalment by only c.RM32-69 or raise a buyer’s eligible loan amount by RM3,000-RM15,000.
“While the sentiment to purchase properties will likely improve due to lower loan instalments, this could be offset by Malaysia’s muted gross domestic product (GDP) growth and slowing household income trend,” it said.
CIMB Research said for instance, the previous interest rate cut of 25bp in July 2016 did not translate into higher property transaction volumes, as there was negative volume growth in 2016-2017.
“We remain Neutral on the property sector as majority of the developers under our coverage have set lower new sales targets for 2019F, signaling a challenging year.
“We do not see much room for housing loan growth given the existing low interest rate environment, limited affordability and higher property prices (+3% yoy in 2018). We expect the housing market to remain challenging in the near term, unless there is a meaningful surge in household income or a decline in house prices,” it said.
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