- Bank Negara Malaysia (BNM) announced three new regulations governing personal and housing loans effective from last Friday (5 July 2013). One of these is to reduce the tenure for residential and non-residential property mortgages to 35 years (from 45 years earlier).

- Credit providers are required to observe prudent debt service ratios to ensure that borrowers have sufficient buffers against rising cost and unexpected events. This would include the capping of debt repayments that do not exceed 60% of the borrower’s income.

- BNM is also set to ramp up efforts to educate first-time borrowers on financing.

- We gather that the latest measures – along with other curbs for pre-approved personal financing products and personal loans – are part of BNM’s pre-emptive moves to put a lid on rising household debt levels.

- Over the last five years, household debt has risen at an average annual rate of 12% to ~83% of GDP currently.

- But, we are unmoved and retain our OVERWEIGHT rating on the property sector. While the latest restrictions may dent sentiment for property stocks in the near term, the solid fundamentals of the Malaysian property market remains largely intact.

- Most importantly, we uphold the view that the absolute impact from a reduction in the duration of property loans would only remove marginal buyers. We expect any slowdown in market volumes to normalise within a quarter – as property buyers readjust to the new regulations.

- On the other hand, the removal of developer interest-bearing scheme (DIBS) as speculated in media reports did not pan out.

- Furthermore, we see a strong return of pent-up buying interest after the 13th general election as evidenced by the strong take-up rates achieved by several high profile launches recently (e.g. Mah Sing’s Meridin@Medini).

- On the other hand, landbanking newsflow continues to be on an ascent, the most recent being Gamuda Land’s acquisition of 724 acres of land in Rawang for RM620mil mid-last month.

- Newsflow momentum on the sector would be further underpinned by the imminent debut of two mega property IPOs in the pipeline; i.e. Iskandar Waterfront Holdings (IWH) and IOI Properties.

- As such, we maintain our bullish view on the property sector. The earnings trajectory of Malaysian property developers remains robust, supported by healthy take-up rates and presales. For exposure to the property sector, our preferred picks are Mah Sing, IJM Land and UEM Sunrise.

Source: AmeSecurities