Fall in Property Loan Applications And Rising OPR

On yearly basis, loan application eased by 10%yoy in October 2022 after the positive growth in the past three months, signaling demand for property is taking a breather.

Fall in Property Loan Applications And Rising OPR
Tepid outlook for loan application going forward with rising OPR - Photo by Gavin Tang / Unsplash

According to data released by Bank Negara Malaysia (BNM), loan application for purchase of property fell by 7.3%mom to RM43.95b in October 2022. This is following a decline of 11%mom in September 2022.

"We think that the two consecutive declines in loan application could be due to OPR hike BNM in September which negatively impacted buying interest and affordability of buyers.," says MIDF.

Monthly Total Applied Loan

On yearly basis, loan application eased by 10%yoy in October 2022 after the positive growth in the past three months, signaling demand for property is taking a breather.

"Looking ahead, we see that loan application to remain subdued as BNM hiked OPR by 25bps in November and may hike OPR further in 2023."

Flattish Approved Loan

Total loan approved for purchase of property eased marginally to RM20.5b (-1.0%mom) in October 2022 after a 11% decline in September 2022. Approved loan was flattish despite sharper drop in loan application as percentage of total approved loan over total applied loan was higher at 46.8% in October 2022 (September 2022: 43.8%). On yearly basis, loan approved was higher by 11%yoy mainly due to sharply lower percentage of total approved loan over total applied loan of 37.8% in October 2021.

Investment Idea / IPO Note ITMAX System
BUY with a TP of RM1.63 based on 26x PER (average PER of its regional peers at similar capacity and market cap) over FY23 EPS

Easing Property Overhang

According to data released by the National Property Information Centre (NAPIC), residential overhang units eased significantly from 34,092 units in 2Q2022 to 29,534 units in 3Q2022. The sharp drop in overhang units were led by Selangor (-14.9%qoq), Johor (-11%qoq) and Penang (-5%qoq). Note that Johor has the highest residential overhang of 5,348 units, followed by Penang (5,222 units) and Selangor (4,386 units).

Residential Overhang

"The decline in overhang units could be attributed to reopening of the economy. Besides, foreign buyers such as from Singapore returned to our local property
market following reopening of international border in April 2022. In a nutshell, we see the lower property overhang units to be slight positive to property sector as overhang units fell below 30,000 units which is the lowest level since 2Q2021

Maintain Neutral - Rising OPR

"We see tepid outlook for loan application going forward as demand for property
could partially drag by rising OPR. Nevertheless, the easing of property overhang is slight positive to the sector as further decline in property overhang going forward may ease concern of oversupply in residential market. Hence, we maintain our Neutral stance on property sector.

"On top picks for the sector, we favour companies with high exposure to affordable price range properties as projects in the mid-market and affordable segments continue to see resilient demand from home buyers. In this context, we like Mah Sing Group (BUY, TP: RM0.74) and Glomac Berhad (BUY, TP: RM0.48) due to their strategy of selling properties in affordable price range."