Weakness in residential properties loans

That the demand for residential properties has fallen is evident from Bank Negara Malaysia’s statistics. The number of loans applied for such properties fell between June and December 2015. In fact, the number of loans applied for in December 2015 were down 16% year on year.

About RM14.9 billion worth of loans were applied for to acquire residential properties in December 2014 compared with RM17.7 billion in December 2015.

On top of this, loans approved for residential properties were down 25% y-o-y to RM7.35 billion in December 2015.

Meanwhile, impaired loans for the purchase of properties rose every month between April and September 2015. From RM4.953 billion in April 2015, these trended up to RM5.159 billion in September 2015. Impaired loans had slowed to RM5.03 billion in December 2015 but were still higher than the RM5.01 billion recorded a year ago.

Maybank Investment Bank Research remains negative on the property sector from a top-down perspective. “The sector lacks a strong re-rating catalyst and the slowdown in property demand could extend another 12 months to 2017. Consequently, it could take a while longer to realise values. The negative lag impact on earnings from weaker sales will start to feature from 2017 onwards,” it states in a Jan 13 report.

“Property stocks under our coverage are trading at an average discount of 36% to 62% to our RNAV estimates compared with a 50% to 70% discount during the GFC (global financial crisis). We advocate investors to go defensive in bottom-up stock selection. S P Setia Bhd (RM3.86 target price) is our ‘buy’ pick for the property sector.”

Kenanga Research is “neutral” on the property sector. “We believe 2016 will be challenging and it is too early to tell if 2H2016 will be better than 1H2015. Recall that most developers are facing limited demand visibility, as experienced in 2015, while tight lending liquidity to the sector persists,” it states in a Jan 7 report.

“We like UOA Development Bhd (RM2.22 target price; net cash position and net yield of 6.8% with IDRP) as a defensive pick. For those willing to take a longer-term view of deep-value developers, we recommend Hua Yang Bhd (RM2.20 target price), which is trading at a compelling 4.4 times forward PER (close to the historical trough) with high exposure to the affordable housing market in the Klang Valley and offers a very strong yield of 7%. We also expect a re-rating of Eco World Development Group Bhd (RM1.90 target price) closer to its Eco World International Bhd’s listing (1Q2016).” - The Edge Property

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