TA retains property sector "overweight" despite central bank lending policy

TA retains property sector "overweight" despite central bank lending policy
Business & Markets 2013
Written by Kamarul Anwar of theedgemalaysia.com
Monday, 08 July 2013 16:16

KUALA LUMPUR (July 8): TA Securities has retained an “overweight” rating on property sector despite Bank Negara Malaysia’s (BNM) reinforcement of responsible lending practices to control household indebtedness.

In a note today, analyst Thiam Chiann Wen explained the rating was maintained because the central bank’s new policy would have a small impact on the overall property sector.

"We maintain our overweight stance on the sector as near-term earnings remain intact driven by sizeable unbilled sales. This latest ruling should not have a significant adverse impact on property sales.

“The percentage increase in monthly installment, based on our case study on monthly instalment for a loan with 35-year and 40-year duration, is about 5.4%,” said the TA analyst.

Additionally, Thiam said the new measure will reduce the affordability of individuals will be reduced by about 5%.

Last Friday, BNM announced the reinforcement of responsible lending practices whereby key credit providers can only offer financing with a maximum tenure of 35 years for the purchase of residential and non-residential PROPERTIES [].

This new financing scheme will only apply to loan applications submitted after July 5, 2013.

“Our ground checks suggest that while there have been some cases of loans tenure being extended up to 40 years for house financing, this trend is not prevalent. We gather that loan tenure is usually being capped at 35 years for residential properties and 25 years for non-residential properties,” Said Thiam in the note.

Additionally, the analyst said these typical loans will only be granted to purchases in the professional field and or university graduates. As for the applicants’ age bracket, it is between 25 and 35 years old on the date of loan application.

“This group of borrowers is deemed to have a greater repayment capability in the future,” Thiam commented.

However, Thiam does not discount the possibility of a reduced transaction in the coming months as banks are grappling with more data required for processing loan applications.

“However, we believe that a property market crash is unlikely given that financial institutions have generally practiced a prudent approach before approving a loan application, and interest rates have remained accommodative.”

According to the note, TA has “buy” calls on S P Setia Bhd with a target price (TP) of RM4.36, Sunway Bhd (TP RM4.58), MAH SING GROUP BHD [] (TP RM3.35), GLOMAC BHD [] (TP RM1.60), Crescendo Corp Bhd (TP RM3.82), and HUA YANG BHD [] (TP RM4.04).