There was a surge in propery loan applications in June as per data released by Bank Negara Malaysia, total loan applied for purchase of property jumped by +35.4%yoy and +15.8%mom to RM46.5b in June 2022, giving an indication the sector is as rosy as ever.
Property loan application growth returned to positive territory in June after two consecutive declines in April and May. Note that the total loan application value in June 2022 is at multi-year high which MIDF thinks could be due to better buying sentiment and pent-up demand post reopening of economic activities. Besides, the research firm also thinks that the higher liquidity from EPF withdrawal in April 2022 may have helped support buying interest on properties. Cumulatively, the total loan applied for the purchase of property was higher at RM238.3b (+5.8%yoy)
Total loan approved for the purchase of property increased by +45.3%yoy and +20.9%mom to RM18.97b in June 2022, in line with the surge in the loan applications. That brought the cumulative total approved loan to RM93.9b (+18.9%yoy) in 1HCY22, indicating a better property sales outlook for property developers. Meanwhile, the percentage of total approved loan over the total applied loan for the purchase of property improved marginally to 40.8% in June from 39% in May, suggesting bank requirements for property loan application remains stringent.
Bank Negara Malaysia raised its overnight policy rate (OPR) by 25 basis points to 2.25% on 6th July 2022. The hike in OPR is slightly negative to the property sector as that would increase house installment of property buyers marginally and reduce the affordability of property buyers. We estimate housing loan installment for loan of RM500k to increase by ~3% for every 25 basis points increase in OPR. Nevertheless, the slight negative from interest rate hike is expected to be partly cushioned by Government incentives to support buying interest. Government announced recently i-MILIKI program which offers a 100% stamp duty exemption for first-time homeowners who purchase properties priced RM500k and below. Overall, we see the normalization of interest rate with the expectation of further OPR hike could drag slightly on property demand going forward.
While the strong property loan application in June 2022 is positive to the sector, MIDF sees that the hike in the interest rate and expectation of further interest rate hikes are slight negative to the sector. Hence, the firm maintains its NEUTRAL view of the property sector.
BUY calls for the sector are Mah Sing (BUY, TP: RM0.74) and IOI Properties Group (BUY, TP: RM1.29). And remain positive on Mah Sing as it sees its new property sales outlook would be underpinned by its quick turnaround strategy in the affordable home segment. MIDF is also like IOI Properties Group due to its undemanding valuation of trading at 73% to its NTA per share of RM3.60. The earnings outlook of IOI Properties Group is expected to underpin by higher contributions from property investment and leisure & hospitality divisions.
