Macquarie Research cuts earnings outlook for local developers on HOC absence

Unsold inventories could pile up again following the end of the HOC and weakening economic sentiment from uncertainty and inflation 


MACQUARIE Research has downgraded earnings for the Malaysian property sector on expectations property developers here will experience weaker sales in 2022 in the absence of the Home Ownership Campaign (HOC) that helped support sales in the past couple of years. 

The firm expected sector earnings to fall by 9% to 10% for the financial year 2022 and 2023 (FY22/FY23) due to challenges in the short-term including uncertainties about the Covid-19 pandemic, affordability and the absence of subsidies. 

Macquarie Research noted in a recent report, unsold inventories could pile up again following the end of the HOC and weakening economic sentiment from uncertainty and inflation. 

The impact of the end of the HOC in 2021 will impact buying interest to some extent, especially in the first half of 2022 (1H22), which was what a recent Real Estate and Housing Developers’ Association Malaysia’s (Rehda) survey alluded to as well. 

The HOC helped RM40 billion worth of transaction pre-pandemic and helped developers significantly trim unsold inventory, comprising 45% residential units. 

Rehda stated the HOC helped developers reduce an estimated 34,354 units in inventory worth RM25.65 billion over nine months from June 2020 to the end of February 2021. 

Macquarie Research believes developer margins would come under pressure due to supplydemand mismatch which could force developers to maintain sales offers while facing increasing rawmaterial costs. 

Potential interest-rate hikes by Bank Negara Malaysia (BNM) this year would have an impact on the affordability of buyers as well. 

Data from BNM for January 2022 show softer loan applications for residential purchases suggest demand appears to have started to decline and the broker expects the trend will continue throughout 2022. 

Macquarie Research expects a 25-50 basis points rate hike in 2H22, which be incrementally negative for future sales or asset reflation. 

“The house price index rose by 11%-13% year-on-year (YoY) during 2012-2013 when the interest rate was kept low at 3%. In our view, a hike in interest rates in 2H22 is still negative for the Housing Price Index,” it stated. 

While it sees the economic situation to improve and buoy residential loan demand, the broker expects loan approval rates to remain tepid due to tighter lending standards. 

Thus, it expects new sales to grow by 6% YoY but overall sales numbers could decline by 11% YoY driven by declining sales for completed inventories/ongoing projects. 

Despite its bearish view of the sector, Macquarie Research has an ‘Outperform’ call on Sime Darby Property Bhd given the potential of its ongoing strategic refocus to grow recurring income streams and its focus on industrial real estate. — TMR