Analysts dismiss claims of Borneo property price correction
Despite &lsquo;challenging&rsquo; conditions in the Borneo housing market, including rising unaffordability and stricter lending regulations, analysts believe property prices will remain steady throughout 2015. Firm housing demand will ensure prices continue to steadily increase, although at a slower pace than in 2014, Alliance DBS Research maintained. The investment experts also dismissed fears that rising household debt stemming from property purchases could adversely affect the economy, noting that strict lending guidelines would prevent any negative impact.
KUCHING: Property prices are likely to remain firm despite the challenging market largely due to cost-push factors, AllianceDBS Research Sdn Bhd (AllianceDBS Research) says.

In a report, the research house highlighted that the property market is now facing more challenging conditions largely due to stricter lending controls and poor housing unaffordability as property prices continue to rise, albeit at a slower pace since the second half of 2014 (2H14).

The rise in house prices has also more than offset the slight dip in transaction numbers.

Nevertheless, while sentiment is more cautious, demand from genuine homebuyers remains robust, underpinned by healthy economic growth which is projected at 4.7 per cent for 2015, while unemployment rate is likely to stay at circa three per cent,” it added.

It further opined, “Despite the much weaker environment in the property market than the past few years, the risk of a property bubble is contained by favourable demographics – young and growing population (and labour force), increasing urbanisation, and shrinking household size.”

There are concerns rising household debt could pose a serious threat to the economy, but AllianceDBS Research pointed out that more stringent lending guidelines adopted by financial institutions could help to ease the pressure.

“Household debt also grew at the slowest pace in five years, at 9.9 per cent in 2014. The risk of a property bubble is also contained by Malaysia’s strong economic fundamentals and a robust banking system.

“Overall household financial health is stable with 47 per cent household gearing and gross national saving-to-gross national income ratio of 30 per cent,” it added.

While property transaction volume growth is expected to be subdued, demand remains healthy in Malaysia, especially in the affordable housing segment.

“Properties priced below RM500,000 contributed 84 per cent of the total number of residential property transactions in 2014. This will underpin the strongest growth segment for developers going forward, premised on the relatively healthy economic outlook,” AllianceDBS Research said.

“Nevertheless, house price index growth has been more subdued, rising 4.1 per cent in 1Q15 compared to 9.6 per cent in 1Q14. The healthy consolidation will improve the outlook for the sector,” it added.

Despite the general view of a slowdown in the property market, township developments continue to be well-received, which supports the research house’s view that demand remains robust for affordable landed properties.

“Developers have also been incorporating more affordable homes in their launch pipelines. Absolute property prices have been kept low by offering smaller built-up units. Affordable landed properties with ready infrastructure and amenities remain in demand, as evident in some of the recent launches.

“Developments that are integrated with current or planned public rail stations continue to be sought after,” it added.

But, future property launches could experience slow take-up like that seen prior to 2011, when projects took two to three years to be fully sold, which is a sharp contrast to the sold-out-upon-launch affairs that seen over the past few years, the research team opined.

“The removal of speculative fervour in the property market will also position developers for a healthier market over the long term. We expect property development projects in prime locations, with attractive pricing and selling points will continue to do well despite the softer sentiment,” it commented.

Developers are also increasingly more aggressive in engaging property agents to help market their launches, given the challenging environment.

“We understand agents could be entitled to as much as five per cent of project GDV, implying higher marketing cost, while selling price hikes may be capped by relatively weak sentiment. Also, expectations of buyers accelerating property purchases prior to the implementation of GST in April did not materialise,” the research team said.

All in, AllianceDBS Research said it continue to like MKH for its large exposure to affordable housing, and Eco World for its unrivalled brand name which continues to drive impressive sales despite premium pricing.

“Meanwhile, SP Setia’s large portfolio of landed product offerings and low land cost allows it to cater to the mid-market segment,” it added.