Yesterday, Prime Minister Datuk Seri NajibTun Razak announced the implementation of the First Home Financing Scheme (MyDeposit) as tabled in the 2016 Budget. He said the scheme was implemented to help the middle 40% income bracket (M40) with household incomes of between RM3,000 and RM10,000. "(This scheme involves) a contribution of 10% of the sales price or a maximum of RM30,000, whichever is lower, to first-time house buyers to help them buy a house costing less than RM500,000," he said after the National Housing Council's (NHC) meeting here, Wednesday. The prime minister said the applicants could make their applications to the scheme online from Thursday through the website of the National Housing Department, Ministry of Urban Wellbeing, Housing and Local Government. Urban Wellbeing, Housing and Local Government Minister. Datuk Abdul Rahman Dahlan said MyDeposit was open to all types of houses from all registered developers except Perbadanan PR1MA Malaysia. The scheme, he said was not limited to new house purchases but also secondary house purchases. At the same event, Najib also announced the implementation of the sale of houses costing up to RM300,000 to first-time house buyers, as announced in the 2016 Budget Recalibration, this month. In order to encourage private developers to build houses costing below RM300,000, Najib said the ministry offered several incentives to developers, including the retention of deposit of RM200,000 from 3% of the estimated cost at present. For mixed development, the prime minister said the deposit was based on the remaining construction of houses priced more than RM300,000. On the implementation of one million affordable houses by 2018, Najib said until Dec 31, 2015, a total of 183,755 units were completed, 214,011 units were under construction and 309,571 units at various stages of planning. He also announced the construction of over 50,000 affordable houses through integrated efforts according to zones, starting with the central zone at the Malaysia Agro Exposition Park, Serdang in July 2016. (Source: Bernama)

We think this is likely beneficial to affordable developers like HUAYANG (OP; TP RM2.20) and MATRIX (MP; TP RM2.46) whose main product segments are priced below RM500k/unit. We opine that the impact will be more for HUAYANG than MATRIX as MATRIX is already facing less of loan rejection rates for their buyers, vs. those in Klang Valley where HUAYANG operates. Additionally, new supply of homes priced below RM500k/unit will be tougher to come by in Selangor as the state government has freeze approvals on service apartments, SOHO and SOVO; generally, affordable products take such forms as these commercial plots are governed by plot-ratios rather than density, which enables developers to build smaller units but more digestible price wise for buyers and still maximize project returns. For developers like HUAYANG who is largely in the Selangor area, it will benefit as it already has the right type of landbanks and has obtained approvals for such projects.

Impact to the big-boys will be muted as we noted that more developers are launching affordable homes priced between RM300k-500k/unit, we also noted that it is on a smaller-scale basis and makes note more than 10%-15% of their launches for the year. Most of their sales drivers are still priced above RM500k/unit. Additionally, developers cannot force affordable developments on their prized landbanks as it means not maximizing returns for shareholders.

MyDeposit scheme does address the issues of first-home buyers struggling with financing upfront deposits. However, first home buyers may still face the issue of higher loan rejection rates as their credit criteria is typically on the weak side; we still think some changes in the banking system loan assessment criteria is necessary for MyDeposit to work more smoothly.

While we laud the government for coming up with MyDeposit, we still believe that the issue with the affordable housing story is the supply of ‘affordable landbanks in the right location’. Developers are willing to help increase supply if such landbanks are available. Furthermore, it is noteworthy that there are more secondary market properties priced below RM500k/unit vs. new supply at the moment.

As for the incentives for developers, we think the impact will be muted for listed developers as they do not see this as a major issue. It would be more beneficial for much smaller scale developers where cashflows can be challenging.

Overall, we are neutral to positive on the news because we are seeing the right solutions being deployed by the government, but expect the impact to be selective as mentioned above. We continue to UNDERWEIGHT the sector as it is going through a structural change that is beyond a demand-supply issue while there is no easy monetary solution in sight. We reckon that if MyDeposit is extended to homes up to RM600k/unit for the same income criteria, the impact will be more significant as developers will be able to release more of such products given their types of landbanks. We expect property stocks, particularly MATRIX and HUAYANG, to react positively to the news today, but we still encourage investors to ‘make hay while the sun shines’ (refer to Property Sector report, 25/3/16).

Source: Kenanga Research - 7 Apr 2016