AmInvestment Bank said the national residential overhang had tapered down by 8% year-on-year to 27,468 unsold units in the first quarter of 2021, translating into RM18.5bil compared with RM18.9bil in the previous corresponding period.
It said this has been mainly due to developers moving from high-end products to affordable ones.
“We are mindful that affordable housing typically commands low margins which could be crimped further by intensifying competition, as this segment gets more crowded by the day.
“However, we think that companies under our coverage are established to compete, given their savvy management teams and healthy balance sheet, with net gearing ratios of 30% to 59%.”
“Hence, they have the ability to secure strategic land banks with a reasonable cost-to-gross development value ratio of between 10% and 20%.
“Year-to-date, Mah Sing and UEM Sunrise have each acquired two landbanks in the Klang Valley while Sunway secured one.”
Separately, AmInvestment Bank said the loan-to-value (LTV) ratio offered by banks has been low.
“Based on Bank Negara’s second half 2020 financial stability review, the average LTV ratio of outstanding housing loans remained below 60% (compared with 59% and 57% in 2018 and 2019 respectively).
“Banks remain prudent in residential property lending to mitigate the risk of more borrowers falling into negative equity and limit the increase in loan loss provisions.”
Even though loans applied for residential properties reached an all-time high in April 2021, reflecting improved consumer sentiment, AmInvestment Bank said the average approval rates of banks slid to only 34.2% from 37.4% a year ago.
“We believe this is likely due to the house buyers’ inability to qualify for a home mortgage given high debt service ratio (DSR) for newly-approved loans at 43%, while the household debt-to-gross domestic product ratio has risen to 93.3% as at December 2020 from 82.9% in December 2019.”
The DSR is calculated by dividing applicants’ debt service obligations by their incomes to assess borrowers’ risk profile.
Most banks observe a cap of 43% for the low-income group and 71% for the middle-to-high income borrowers.
“Potential house buyers may have little room left to take on a home mortgage due to their existing debt service commitments (arising from outstanding study, car or personal loans) while their incomes have not grown sufficiently during the pandemic.
“This was exacerbated by the softer job market as reflected in the still elevated unemployment rate of 4.7% from January to May 2021,” the research house pointed out.