Developers’ 3Q earnings expected to contract

The 6-month blanket moratorium that ended on Sept 30 constrains buyers to commit to big ticket items such as properties


EARNINGS of listed property developers in the third quarter of 2020 (3Q20) are expected to shrink due to the stricter bank lending standards and compressed margin amid the Covid-19 crisis.

Inter-Pacific Securities Sdn Bhd head of research Victor Wan said the six-month blanket moratorium that ended on Sept 30 constrained buyers to commit to big ticket items such as properties, which further exacerbates earnings risk for developers who are grappling with the conversion rate from bookings to sales.

“A lot of people are taking the opportunities to look at buying properties again due to the Home Ownership Campaign and lower interest rate, but it boils down to the abilities to borrow.

“If buyers are not able to get loans, it will be difficult for developers to secure sales,” he told The Malaysian Reserve.

In addition, Wan said, there is a huge number of overhang units in the whole country, which will weigh on developers’ costs as inventories.

Based on Bank Negara Malaysia’s monthly statistics, there were RM29.91 billion loans applied for the purchases of residential properties in July, with only RM9.12 billion approved.

In August, RM9.85 billion loans were approved for housing purchases from RM27.45 billion loans applied.

“Moving forward, we may see earnings contractions from property players as developers are willing to sell at lower profit margins in order to attract buyers,” Malacca Securities Sdn Bhd equity research analyst Kenneth Leong said.

“The move is to ensure sustainable cashflows over the near- to mid-term basis,” he added.

There were 31,661 overhang residential units worth RM20.03 billion in the first half of 2020 (1H20), increased by 3.3% in volume and 6.4% in value from 30,664 units worth RM18.82 billion in 2H19, according to the National Property Information Centre’s (Napic) Property Market Status Report.

Serviced apartment subsector overhang continued to rise and form the bulk of commercial property overhang, recording a total of 21,683 units with a value of RM18.64 billion, up by 26.5% in volume and 24% in value against 17,142 units worth RM15.04 billion in June to December 2019.

Johor retained the highest number and value of residential overhang in the country with 6,166 units worth RM4.74 billion, accounting to 19.5% and 23.7% respectively of the national total in the period.

It also emerged as the highest serviced apartment overhang state in 1H20 with a 73.7% share in volume (15,986 units) and 76.7% share in value (RM14.67 billion), with almost all of these overhang units were in Johor Baru district.

Recent data from the Iskandar Property Census by Datamine Malaysia revealed that the median price for high-rise residential units in Iskandar Malaysia, Johor Baru, declined 8.9% year-on-year (YoY) to RM573,931, or RM577 per sq ft, in 3Q20 from RM629,903 last year.

“The target markets in Iskandar Malaysia are mainly buyers from mainland China and other countries like Singapore and Hong Kong.

“With the current travel restrictions, the downturn will likely continue for high-rise property projects in Iskandar Malaysia, and oversupply remains uneased,” Leong said.