Property loan approval rates in Malaysia are expected to start recovering from the third quarter of this year, as coronavirus lockdown restrictions begin easing with the gradual opening of the economy.
UOB Kay Hian, in a report, noted that the mortgage approval rate saw a month-on-month pickup of four percentage points in April and two percentage points in May, following a lockdown.
“While this remains below the pre-Covid-19 levels of above 40 per cent, we do not expect banks to further tighten approval standards since they have been fairly stringent even before the onset of the pandemic.
“We expect to see a recovery in the loan approval rate from the third quarter of 2021, as the loan processing backlog is expected to ease with the gradual reopening of the economy.”
UOB Kay Hian said this would also translate to a better conversion rate of property sales, as transacted value historically trends in tandem with the mortgage approval value.
Separately, the research house said developers with strong balance sheets have been in buying mode to replenish their landbanks for future developments.
Sunway, Mah Sing and UEM Sunrise, with relatively low net gearing levels, have each entered into two land acquisition deals year-to-date.
“We gathered that these land transactions are located in more mature areas in the Klang Valley region.
“This signals developers’ moves to reframe their strategies to focus on high demand/strategic locations for long-term growth. For instance, UEM Sunrise is buying land in the more prime locales such as Petaling Jaya and Cheras, which could provide a quicker turnaround. That said, we think cash calls could be minimal at this juncture.”
Additionally, UOB Kay Hian said SP Setia, with its high gearing, had disposed of 388ha of land with an estimated disposal gain of 290 million ringgit ($69 million).
“This is in line with the group’s strategy to monetise its non-strategic landbank to strengthen cash flow.
“The group has also identified nine parcels of land totalling 1,295 acres [524ha] with a market value of 1.96 billion ringgit for outright sales or on a joint venture basis.”
UOB Kay Hian also highlighted that the stake sale of Sunway’s healthcare unit at robust valuation provides better clarity for the Sunway Healthcare Group’s (SHG) expansion visibility and initial public offering timeline.
“SHG could see earnings compounded annual growth rate of 20 per cent to 25 per cent, given its ongoing expansion and this would contribute to about 22 per cent of Sunway’s 2023 earnings versus three per cent in 2020.
“We believe the strong growth trajectory of SHG could help Sunway to build a formidable growth engine and increase Sunway’s valuation over time.
“We foresee potentially more asset monetisation activities in the property industry amid the soft market outlook.”
UOB Kay Hian said key risks to the property sector include a prolonged lockdown that would further dampen the economic outlook and consumer sentiment on big-ticket items; slower-than-expected progress billings, spiking building material cost and impairments on receivables and completed inventories.
THE STAR (MALAYSIA)/ASIA NEWS NETWORK