Overall, we laud KPKT for a more thoughtful approach to the NAHP 2.0, which includes relooking the approaches to lending, using a more realistic definition of affordable housing, which is defined by an income-based approach and the graduation model for home ownership (rentals, rent-to-owns). There is also comfort in the government acknowledging the compliance cost pressures faced by developers which hinders their ability to supply more affordable homes and looking into reducing these costs, which can be passed on to buyers, including the SST exemptions. Furthermore, ‘reasonably’- priced land is required to create affordable housing supply in urban locations as land cost is a major swing-factor in development margins. We are also glad that the supply overhangs of homes priced below RM500k/unit has been acknowledged and that the government will include this as part of their affordable home supply. While this may help to mop up developers’ inventories, it may lead to less new launches as the industry will be busy absorbing the current overhangs. It also means near-term margin compression situation is expected and it is a necessary pain for all developers needing to clear inventories. The NAHP 2.0 should be out by end-Oct to early-Nov, as it is currently pending cabinet’s approval, and following that is the Affordable Housing Expo 2019 (JanFeb 2019) which will feature affordable houses priced below RM500k/unit with complementing financing solutions. It will be interesting to see the response from the expo as it will be a good indication of the effectiveness of these measures. Overall, we do not expect developers’ sales and earnings trajectory to change much in the near to medium-term as these measures will at best, help developers sustain current momentum and earnings quality. Furthermore, there are near-term margin pains to be expected from inventory clearing while many of our developers’ project exposures are mainly those priced between RM500k-1m/unit. Positively, we can say that this may be the bottom of the sector’s de-rating process if these measures are effective in addressing the overhang issues. Hence, we still see no clear re-rating catalysts even though developers’ RNAV discounts are trading at trough to -1.0SD levels. Nonetheless, we are positive that the measures put in place do address the supply overhang issues which will mean a healthier prospect for the sector in the long run. Reiterate NEUTRAL.

We attended the “Malaysia: A New Dawn” conference, an investment community event spearheaded by the Ministry of Finance and jointly organized by CIMB, MAYBANK and RHB. The panel session, “Building Sustaining Infrastructure & Housing”, which took place in the afternoon track, was extremely well attended with investors filling the room to the brim. The panellists were YB Zuraida Kamaruddin (Minister of Housing & Local Government or KPKT) and YB Baru Bian (Minister of Works) while the moderator was Dato’ Soam (CEO/MD of IJM, REHDA President). It was insightful as it gave us some colour on what we can expect in terms of the widely anticipated Dasar Perumahan Negara 2.0 or the National Affordable Housing Policy (NAHP) 2.0. For the purposes of addressing the property sector in this report, we will focus on the Minster of Housing’s views and comments only.

B40 group remains a priority. Firstly, KPKT Minister Zuraida made it clear that the B40 group remains a priority as affordability and the barrier to financing is much higher for this group, while the M40 group will benefit from more affordable home supply and improved financing schemes, which will be made available soon.

The NAHP 2.0 will focus on the following areas; (i) affordable housing policies and its long-term sustainability, (ii) solutions to overcome financing barriers faced by first-time house buyers, and (iii) addressing the supply overhang rate, which Minister Zuraida mentioned is more severe for homes priced below RM500k/unit, rather than what has been publicly perceived i.e. overhang of high-end units. It was also indicated there will be more stringent enforcements on developers’ responsibilities and deliverables, including policies, which address developers holding on to unsold units for extended periods. If so, we opine this will improve the quality of houses as developers will have to ensure that these houses are both saleable and liveable, which will essentially weed out the weaker developers.

Source: Kenanga Research - 10 Oct 2018