The year 2022 started off on a positive note with the property sector poised for a long overdue rebound. This was in tandem with post-pandemic economic recovery. But sentiment has now weakened.
According to Hong Leong Investment Bank (HLIB) Research, Bank Negara Malaysia’s (BNM) interest rate upcycle as well as the rising inflationary pressure will negatively impact buyers’ purchasing power.
Moreover, property developers are also facing their own set of challenges that range from elevated building material pricing to labour shortage and rising financing costs.
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There is a lack of visibility on when the challenges faced by the developers will start to ease. Demand outlook has also weakened with the current interest rate upcycle and inflationary pressure.
The National Property Information Centre’s (NAPIC) data, suggests that the number of residential property transaction was down -10% quarter-on-quarter (qoq) due to a higher base from the previous quarter as buyers took advantage of the Home Ownership Campaign (HOC) prior to its expiry in end-2021. Nevertheless, this was still a +10.5% year-on-year (yoy) improvement from better sales following economic re-opening.
Unsold units eased slightly at -3.4% qoq but increased +21.5% yoy and remained at an elevated level. As such, the property overhang issue will likely continue to exert pressure on housing price as witnessed by the Malaysia House Price Index (HPI) which came down -2% qoq.
HLIB Research expects property developers to be more cautious in their project launches under a rising and volatile cost environment as any cost increase is likely to compress their margin.
Labour shortage would delay (i) project execution timeline; (ii) revenue recognition; and (iii) cash flows to developers. In addition, the interest rate hike would also increase the financing cost for developers.
As observed by HLIB research, the KL Property (KLPRP) Index’s 1H 2022 performance was in line with its narrative as the index started off the year with gains of +2% in 4M 2022, indicating a sense of optimism.
But this has now been dampened with interest rate hikes and poorer economic prospects globally. Planners, developers, regulators and economists have to work on an action plan to revive the housing sector for the benefit of the B40 and M40 groups. Otherwise, we will continue to build units that will remain unsold for long periods. We can’t afford to have another “Forest City” in other parts of this nation.
Reference:
Malaysia’s property sector outlook turns bleaker in 2H 2022, Cheah Chor Sooi, Focus Malaysia, July 14, 2022
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