2 key events to watch out for in Malaysian property in Q4 2020

One is the lifting of the 6-month loan moratorium in end-September which could lead to more property auctions.

According to Maybank Kim Eng, two key events to watch out for in 4Q20 are: 1) potential policy easing measures e.g. new Developer Interest Bearing Scheme [DIBS] in the upcoming Budget 2021; and 2) the lifting of the 6-month loan moratorium in end-Sep 20, which could lead to more business closures and auctioning of properties. Higher NPLs could prompt Malaysian banks to be more selective and careful in approving loans, which may affect demand for properties. Currently, the average conversion rate (from bookings/presales into SPA) is 40-50%, depending on the property type.

Here's more from Maybank Kim Eng:

The opportunities

Further policy easing measures such as a new DIBS could be announced in the upcoming Budget 2021 in early Nov 2020. Under DIBS, developers will be allowed to pay the interest on a property buyer’s home loan during the entire construction period. This would help to lift buying sentiment and encourage demand by making the upfront cost lower or more affordable. From our channel checks, we understand that the new DIBS has been discussed with various government and central bank representatives. We were told that the selling prices will be more transparent under the new DIBS.

To recap, the government announced several property sector policy easing measures relating during the Economic Recovery Plan on 5 June 2020. These measures include the reintroduction of the Home Ownership Campaign with MYR1b in stamp duty and real property gains tax exemptions, as well as the lifting of the 70% financing margin limit (loan-to-value ratio) on third property onwards, subject to the internal risk management practices of financial institutions.

The risks

While we are positive on the potential policy easing that would lift buying sentiment, a much weaker economy due to rising job cuts and business closures as well as more auctioned properties may hinder the stimulus’ effect. The lifting of the 6-month loan moratorium in end-Sep 20 could lead to more business closures and number of auctioned properties. Higher NPLs could prompt banks to be more selective and careful in approving loans, hence, affecting the demand for properties. Currently, average conversion rate (from bookings/pre-sales into SPA) is 40-50% depending on the property type and pricing.

Risks to our calls:

1) Disconnection between equity market performance, the real economy and underlying corporate fundamentals in a liquidity-driven market environment. 2) Second wave of Covid-19 outbreak and more economically damaging lockdowns before a Covid-19 vaccine is found. 3) Political risk.