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Higher loan approvals in the first two months of 2022 indicate that the market is recovering, says MIDF Research

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The local real estate market appears to be recovering, with higher loan approvals in the first two months of this year, said MIDF Research.

 

According to Bank Negara Malaysia data, the total loan applied for to purchase property increased by 9.2 per cent year on year (YoY) to RM28.6 billion in February 2022, after increasing by +5.4 per cent YoY in January 2022.

The increase in property loans, according to MIDF, is in line with the firm's expectation of a marginal recovery in property demand as economic activity normalises.

Because February was a short month, the total loan application was lower (-17.1 per cent month on month).

Total applied loan for the first two months of 2022 was higher at RM63.2 billion, a 7.05 per cent YoY increase, indicating that property demand is recovering, according to the firm in a research note.

MIDF Research said the total loan approved for property purchase was higher in February 2022, at RM11.3 billion (+9 per cent YoY), in line with a higher loan application for property purchase.

 

In the first two months of 2022, the total loan approved for property purchase increased to RM26 billion (+20.4 per cent YoY), indicating a better outlook for new property sales for property companies this year.

"Nevertheless, we reckon that stringent bank requirement remains a challenge for property companies considering that percentage of total approved loan over the total applied loan for the purchase of property is hovering below 40 per cent in February 2022," the firm said in a research note.

Subdued house price index

According to the National Property Information Centre (NAPIC), Malaysia's House Price Index (HPI) was subdued in the third quarter of 2021. (3Q2021). HPI was 202.0 in 3Q2021, a marginal decrease from 202.5 in 2Q2021.

 

The firm believes that the decline in HPI is primarily the result of the Covid-19 pandemic's negative impact on the property market.

 

Meanwhile, preliminary HPI of 200.4 in 4Q2021 indicates that HPI continues to fall as the property market suffers from lower demand for property in the aftermath of the Covid-19 pandemic.

 

"We think that HPI should stage a marginal recovery in 2022 due to economic recovery," the firm said.

 

In the property sector, MIDF Research maintains a NEUTRAL stance.

According to the firm, property companies will see a slightly better new sales outlook in 2022, as buyer interest in property should recover following the recovery in economic activity.

 

It believes that this will offset the negative impact of the lack of government incentives to purchase property now that the House Ownership Campaign has come to an end.

 

"In a nutshell, we maintain our Neutral call on the property sector," it said.

 

MIDF Research has maintained BUY calls on Mah Sing (TP: RM0.80) and IOI Properties Group (TP: RM1.29).

 

The firm is optimistic about Mah Sing because its strategy of developing low-cost properties should result in a new sales outlook.

 

It is bullish on IOI Properties Group because of its undemanding valuation, which is trading at a 72 per cent discount to the most recent net tangible asset of RM3.60 per share.

 

IOI Properties' new sales forecast remains stable, supported by projects in Malaysia and China. The hospitality and investment property sectors are expected to benefit from Malaysia's economic recovery and the reopening of its national borders, it said.