PETALING JAYA: The latest overnight policy rate (OPR) cut is unlikely to have a significant boost on the property sector, given the gross domestic product (GDP) contraction, slowing income trend and Covid-19 disruption, according to CGS-CIMB Research.
“Home-buyers’ purchasing power will likely improve due to lower loan instalments but we expect the spillover effects on the property sector to be negligible, given the anticipated contraction in GDP and slowing household income trend this year.
“Our economist is forecasting a GDP contraction of 4.3% for the country in 2020, ” it said in a report yesterday, adding that lower borrowing costs might not spur demand.
Citing data from the National Property Information Centre, CGS-CIMB said the total property overhang declined 8% year-on-year, which could have been mainly driven by the Home Ownership Campaign (HOC) 2019 and fewer new launches.
“We expect 2020’s property overhang to increase despite the OPR cut, as property sales and transactions could be lower due to the impact of the movement control order (MCO) and the absence of HOC incentives this year.”
The government imposed the MCO on March 18. It has been extended to May 12.
Bank Negara lowered the OPR by another 50 basis points to 2% on Tuesday, following the 25 basis points cuts in January and March. Based on historical trends, CGS-CIMB said this is likely to result in banks lowering their indicative lending rates.
“We estimate that every 50 basis points reduction in borrowing rate would reduce the monthly instalment for mortgage loans by 2% to 7%, depending on the loan tenure.
“Our sensitivity analysis shows that every 50 basis points cut in borrowing rate would reduce the monthly housing loan instalment for properties in the affordable range of RM300,000 to RM500,000 by RM64 to RM131 or raise a buyer’s eligible loan amount by RM8,000 to RM30,000.”
For now, the research house is reiterating a “neutral” outlook on the local property sector.
“We stay sector neutral given the weak macro outlook, affordability issues and expected lower property sales, even though the KL Property Index is currently trading at 0.4-times price-to-book-value, which is below its historical 10-year price-to-book value of 0.75-times.”
CGS-CIMB said Sime Darby Property remained its top pick, given its solid balance sheet with a lower net gearing level of 0.25-times compared with its peers at 0.3-times; strategic land banks located in close proximity to the East Coast Rail Link and Malaysia Vision Valley 2.0 in Negri Sembilan.
The research house added that Sime Darby Property also had its large land bank to cater for future demand.
“We also like Mah Sing for its solid balance sheet and attractive dividend yield of more than 7% for 2020 to 2022, ” the research house said.
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