KENANGA Investment Bank has maintained a neutral stance on the property sector despite the ongoing challenges posed by oversupply, high household debt, elevated interest rates and diminished consumer sentiment resulting from high inflation and escalating cost of living.

In a property sector update on Tuesday (April 30), Kenanga Investment Bank said there are notable shifts and improvements within the sector, particularly in the reduction of overhang units and the focus on affordability in residential developments.

Citing Bank Negara Malaysia’s (BNM) data as of January 2024, the research house noted that industry approval rates appear to have eroded notably to 40.0% (Dec 2023: 43.4%; Dec 2022: 43.5%).

“That said, we gathered the January readings are typically lower as banks may be more selective with their early-year admissions,” said Kenanga.

“There has also been a gradual rise in overall applications possibly fuelled by the influx of affordable home products which are more assessable to the wider market.

“We opine that subsequent approval readings may only range bound between 40%-45% (being the recent years’ average) as the abovementioned inflationary pressures could invite delinquencies should loan approvals become more lenient.”

The research house further noted that on the other hand, household debt-to GDP readings of 84.2% in 2HCY23 (81.0% in 2HCY22) is lower than pre-pandemic levels of c.88%.

While the rise could be attributed to higher average interest rates, the rising inflow of mortgage books may also contribute to the increase.

Latest data for CY 23 from National Property Information Centre (NAPIC) revealed a reduction in total overhang units, with the number standing at 121,568 (CY22: 142,475 units) and concentrated in Kuala Lumpur, Selangor and Johor.

“Notably, 61% of newly launched residential properties are priced below RM500k, signalling a growing preference for affordable housing options,” the research house noted.

“Meanwhile, developers are adapting to market dynamics, offering a mix of products with a heightened emphasis on affordability to cater to first-time house buyers and align with shifting consumer preferences which are partially inclined by ongoing economic uncertainties.”

It said that over the last two years, there has been a gradual but consistent increase in sales, indicating a market that is growing moderately rather than aggressively.

“The expanding demographic of young people also suggests a rise in first-time house buyers, injecting momentum into the housing sector. Government initiatives specifically tailored to support house buyers offer prospects for a more balanced market, fostering accessibility and stability, which provides confidence to buyers, sellers, and investors, reducing uncertainty and the risk of significant financial losses associated with volatile price movements,” Kenanga stated.

“Nonetheless, amidst these positive trends, challenges persist as the cost of living continues its upward trajectory while incomes remain stagnant.”

Looking ahead, Kenanga reckoned that the sector is expected to maintain its focus on affordability, driven by factors such as population growth, urbanisation and increasing demand for reasonably-priced units.

It said transit-oriented developments are likely to gain traction, particularly in the Klang Valley, as buyers seek convenient commuting options. Despite facing ongoing challenges, like economic shifts and regulatory changes, the sector is showing resilience and adaptability.

Meanwhile, Kenanga pointed out that there is optimism in the Johor property market, which is fuelled by the Special Economic Zone initiative and seamless public transport connectivity upon the completion of the Johor Bahru-Singapore Rapid Transit System in 2026.

“We believe it will take a lot more than these to transform Johor Bahru into a thriving world-class metropolis that could draw in large population both from other parts of Malaysia and across the Causeway,” it said.

“Our field checks show that developers there continue to tread cautiously as it takes time for these developments to translate into actual sales for the developers.” - April 30, 2024 

https://focusmalaysia.my/kenanga-spotlight-on-affordable-housing-as-cost-of-living-issues-persist/