Highlights

• Second sharpest decline in value of property transaction since 2002… According to NAPIC, Malaysia property market recorded 8% decline in value of transaction and 5.7% contraction in number of transaction in 2015. This was the second sharpest decline since 2002, after a 8.3% decline in 2009. In term of transaction volume by state, Johor led the decline (- 19%), followed by Penang (-16%), KL (-10%) and Selangor (-6%) (Ref Fig 1,2,3).
• Rising unsold inventory but still manageable… In 2015, new launches (in unit) dropped by 19% as developers delayed launching after a fall in take up rate from 45% to 41%. Despite the rising of number and value of unsold units (which increased by 16% and 56% respectively), it is still remain manageable as the total of unsold units only represents circa 1.6% of existing housing stock (Ref Fig 4).
• Supply con tinues to accelerate… In 2015, supply continues to accelerate with incoming supply reaching 892k (+16%), representing 18% of Malaysia’s existing stocks, the highest since 2004. Based on our supply and demand analysis, Johor remains oversupplied, while KL and Selangor have more balance of demand and supplied dynamics (Ref Fig 5 & 6).
• Leading indicators suggest sales remain slowed… br /> After declining for twelve straight months, loan application in Feb 16 and Mar 16 increased by 1.9% and 5.6% YoY respectively. However, tight bank lending will continue to constraint property sales with approval rate persistently below 50%. With the appointment of internal successor for bank governor, we expect speculation of potential relaxation of property measures to fizzle out.
• Creative campaign points to challenging outlook… In order to boost sales in the challenging market, developers have come out with different kinds of creative products including attractive cash rebate, deferred payment with zero interest and own financing scheme (Ref Fig 8) aiming to help alleviate upfront funding issues and difficulty in securing full loan for buyers.
• Affordable housing remains the bright spot… his can be seen by the launching of Elmina Valley Phase 1 and 2 (within RM600k range) which recorded above 90% of take up rate within a day. The recent launch of MyDeposit Scheme from government will provide fi rst home buyer with grant up to RM30k for household income of below RM10k and properties below RM500k. However, the impact might be minimal as the RM200m budget allocation only translates to circa 7,000 units or 3.5% of property transaction below RM500k in 2015.

Rating

NEUTRAL

Positives

• Favourable demographics with housing inflation hedge; Negatives: Prolonged weakening in consumer sentiment and tightening policy.

Valuation

• Top Picks: Matrix Concepts (BUY; TP:RM2.91) and IOI Prop (BUY; TP: 2.77). We also have BUY call on Sunway (TP:3.63).

Source: Hong Leong Investment Bank Research - 6 May 2016