by S BIRRUNTHA/pic by TMR

MIDF Amanah Investment Bank Bhd (MIDF Research) sees a tepid new sales outlook for property companies on weak consumer sentiment due to rising inflationary pressure.

The research house noted that the loan application for the property sector saw little change in the first five months of 2022.

According to data released by Bank Negara Malaysia, the total loan applied for purchase of property in May 2022 declined to RM40.2 billion or 1.7% year-on-year (YoY).

MIDF Research said loan application in May 2022 was tepid following a decline of 6.3% YoY in April 2022.  

The research house also stated in a note today that property loan applications took a breather in April 2022 after it fell for the first time in seven months.  

“Cumulatively, total loan applied for the purchase of property was little-changed at RM191.8 billion (+0.4% YoY) in five months of the calendar year of 2022 (5MCY22), indicating buying interest was lukewarm despite reopening of economic activities,” it said.

Additionally, MIDF Research said the total loan approved for the purchase of property was higher at RM15.7 billion (+6.9% YoY) in May 2022 despite lower loan applications mainly due to a higher percentage of total approved loan over a total applied loan of 39% in May 2022 against 35.8% in May 2021.

“Nevertheless, we think that stringent bank requirements remain a challenge for property companies considering that the percentage of total approved loan over the total applied loan for the purchase of property remains below 40% in May 2022,” it said.

The research company maintained its ‘Neutral’ view on the property sector, adding that its ‘Buy’ calls for the sector are Mah Sing Group Bhd with a target price (TP) of RM0.74 and IOI Properties Group Bhd with a TP of RM1.29.

“We like Mah Sing for its strategy of focusing on the affordable home segment which should support new sales.  

“We are also positive on IOI Properties Group as we expect earnings recovery from property investment and leisure and hospitality divisions following the reopening of the economy,” it said in the same note.

Meanwhile, the research house also noted that the Kuala Lumpur Property Index (KLPRP) underperformed FTSE Bursa Malaysia KLCI (FBM KLCI) in the first half of 2022 after recording a decline of 9.5% against FBM KLCI’s decline of 7.9%.

The weak performance of KLPRP could be attributed to the lack of catalyst to support buying interest on property in 2022 as the House Ownership Campaign ended on Dec 31, 2021.  

“Looking ahead, we think that buying interest on the property could be slightly dented by the inflationary pressure as buyers turn cautious on making buying decisions on big-ticket items.  

“Besides, the rising raw material costs are also expected to hurt the margin of property companies going forward as property companies may not be able to fully pass on the rising raw material costs to buyers,” it noted.