Slow Down In Loan Application Signals New Challenges For Property Players

Loan application falls for the fifth consecutive month, according to data released by Bank Negara Malaysia (BNM), loan applications for the purchase of property started CY23 on a weaker note, falling by – 12.6%mom and -25.6%yoy in January 2023.

MIDF said this could be due to the lagged effect of several interest rate hikes in 2022 that resulted in higher monthly instalments for housing loans and subsequently dampened buying interest. On yearly basis, loan application was subdued, falling by double-digit for a fourth consecutive month. Loan application for the purchase of the property was subdued as buying interest normalized from pent-up demand that was observed in the middle of last year.

Total loan approved for the purchase of property declined for the fifth consecutive month in January 2023. The approved loan figure fell to its lowest level in a year, easing by – 18.2%mom in January 2023 after a marginal drop of -0.8%mom in December 2022. The downtrend in the approved loan was in line with lower loan applications. Meanwhile, the monthly decline could also attribute to the lower percentage of total approved loans over the total applied loans of 42% in January 2023 (December 2022: 45%). On yearly basis, approved loans dropped by double-digit for the third consecutive month after recording a decline of -16.3%yoy in January 2023. MIDF said it sees that the downtrend in the approved loan may signal a challenging new sales outlook for property developers in the near term.

Another pause in rate hikes is a relief to the sector. BNM maintained OPR unchanged at 2.75% on 9th March 2023 after
the paused rate hike in January 2023. The second pause in a rate hike this year is positive for the property sector as it provides short-term relief to the sector. We see that the four rate hikes by 100bps in 2022 dampened buying interest on the property as that lifted monthly instalments for housing loans. We estimate that a 100bps hike in OPR raised monthly instalments by around 12% for an RM500k house loan. With the pause in a rate hike, the research house thinks that buying interest on the property should recover marginally in the near term.

According to data released by National Property Information Centre (NAPIC), the residential overhang of Malaysia eased in 2022. Residential overhang declined to 27,746 units in 2022 from 36,863 units in Recall that residential overhang swelled to 36,863 units in 2021 from 29,565 units in 2020 due to Covid-19 pandemic. The decline in the residential overhang in 2022 could be attributed to higher buying interest following the reopening of the economy. Johor has the highest number of residential overhang units 6,089 followed by Selangor (6,095 units) and Penang (5,493 units). The decline in residential overhang is positive to the property sector as that eases concerns about the oversupply situation of residential properties in Malaysia.

The house maintains a NEUTRAL position in the property sector, it sees a limited catalyst to the property sector due to the subdued property loan application which signals a challenging new sales outlook for the property sector. Nevertheless, the pause in OPR hike should support the recovery of buying interest marginally. Hence, it maintains a NEUTRAL stance on the property sector. MIDF sees that properties in the mid-market and affordable segment will continue to see resilient buying interest from property buyers as buyers look for properties that they could afford amid normalising interest rate environment.

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