AmInvestment maintains ‘Neutral’ stance on property sector

This is because a full- edged recovery remains unlikely within the next 12 months


The property sector in Malaysia has been facing wide shortages of affordable housing across the country. Along with the high cost of living, it is difficult for homebuyers with limited resources to own houses.

As a full-fledged recovery remains unlikely within the next 12 months, AmInvestment Bank Bhd has decided to stay ‘Neutral’ on the property sector in 2018.

Several key challenges such as elevated home prices, low financing margins by banks and high debt-service ratio (DSR) among prospective homebuyers are also expected to influence the industry.

The DSR is calculated by dividing a person’s debt service obligations by income. Most banks observe a 60% cap for the low-income group and up to 80% for the high-income group.

The investment bank noted that potential house buyers may have a hard time taking on home mortgages because of their existing debt commitments arising from outstanding study, car or personal loans.

At the same time, their incomes have not kept pace with the commitments.

AmInvestment said the only way to somehow counter this is to offer more affordable homes, as well as flexible financing schemes to potential buyers.

“We are aware that affordable housing schemes typically command low margins. These margins could be crimped further as the segment gets more crowded by the day.

“We believe the investment case for an affordable housing developer only holds merit if the developer is able to secure a strategic landbank with a high plot ratio at cheap prices, has access to highly cost-effective and speedy construction methods, and also sell those affordable houses in large quantities.

“Otherwise, we are more inclined to see the selling of affordable housing as a means for developers in general to tide themselves over, while waiting for the property market to make a turnaround,” AmInvestment said.

Consumer sentiment has also remained subdued as consumers face the constant rise in cost of living, weak job security, as well as elevated household debts.

Next year’s potential hike in the Overnight Policy Rate will also taper sentiments, given Bank Negara Malaysia’s recent hawkish bias.

AmInvestment pointed out that if banks were to ease their lending policies on properties or if the consumers’ sentiments improved significantly, it may upgrade its ‘Neutral’ stance on the sector to ‘Overweight’, while an ‘Underweight’ stance would be taken if the opposite occurs.

Having said that, overseas projects may likely be a boon to developers as a recovery sweeps the property markets across the UK, Australia, Singapore and Vietnam.

“These markets are ahead of Malaysia in terms of their recent boom-bust cycles. They have been through the consolidation phase and are now on a path to recovery,” the bank said.

Meanwhile, the real estate investment trust (REIT) segment is expected to underperform in a rising interest-rate environment. Retail REITs may be hurt further by the rise of e-commerce.

“We advocate stock picking in the REIT sector,” according to AmInvestment.


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