Property Market Correction To Continue Through 2014
BMI View: We believe that the property market will continue to cool over the course of 2014 as newly introduced property market curbs begin to take effect. In light of the decent progress we have seen with regards to government efforts to stabilise property prices, we believe that policymakers are likely to hold off on plans to introduce tougher property market curbs over the coming months. In terms of property-related stocks, we believe that the correction is not yet over, and we see room for further declines over the coming months.
Latest figures published by Bank Negara Malaysia (BNM) showed that property prices across the country are rising at a slower pace compared to previous quarters, broadly in line with our view that cooling measures implemented by the government would help to curb speculative demand for real estate. The Malaysia House Price Index (MHPI), which tracks property prices across 13 states, rose by just 1.3% quarter-on-quarter (q-o-q) in Q313, a significant slowdown from the average quarterly growth rate of 2.7% since the beginning of 2011.
|Cooling Measures Beginning To Weigh On Demand|
|Malaysia - House Price Index, (2000 = 100) (LHS) & % chg y-o-y (RHS)|
We view the government's decision to hike the real property gains tax (RPGT) for its 2014 fiscal budget as a major step, reflecting a commitment by policymakers to reinforce existing macroprudential measures aimed at stemming property market speculation. We believe that the full impact of the RPGT is likely to take several months to be fully reflected in property prices. Thus, we expect property prices to continue cool over the course of the year.
|Curbs To Slow Demand For Loans|
|Malaysia - Loan Applications For Residential And Non-Residential Properties, % chg y-o-y|
Government To Hold Off On Tougher Measures
In light of the decent progress we have seen with regards to government efforts to stabilise property prices, we believe that policymakers are likely to hold off on plans to introduce tougher property market curbs over the coming months. Moreover, with growing anecdotal evidence that speculative foreign capital has begun to shift away from Malaysia and into other regions that provide more attractive valuations, policymakers are aware that introducing tougher property curbs could risk triggering a collapse in property prices.
|Long Past Its Peak|
|Malaysia - Bursa Malaysia Property Index|
Further Losses Ahead
In terms of the performance of property-related stocks, we note that the Bursa Malaysia Property Index is still at historic highs despite the price correction we saw in mid-2013. Anecdotal evidence by the local media also suggests to us that property developers and real-estate analysts generally maintain an optimistic view on demand for new property launches in 2014. However, as we have mentioned above, we believe that the property market will continue to cool and that we could start to see investor sentiment turning increasingly bearish over the course of 2014. Therefore, we believe that the correction is property-related stocks is not yet over, and we see room for further declines over the coming months.