Loan application statistics for August 2022 show that demand for real estate remained unaffected by the increase in the overnight policy rate (OPR), as demand was bolstered by the recovery of the economy, according to MIDF Research.
The firm was referencing information provided by Bank Negara Malaysia that showed the total loan amount applied for the purchase of real estate grew to RM53.4 billion in August 2022, or 4.5 per cent month-over-month (m-o-m), following a fall of 12.5 per cent in July 2022.
The number of applications for property loans increased by 66.1 per cent year over year (y-o-y) in August 2022, due to the low base impact brought on by the lockdown implemented in August 2021.
The total loan amount authorised for the acquisition of property marginally climbed to RM23.3 billion or 2.4 per cent m-o-m in August 2022, reversing a decrease of 9.0 per cent m-o-m in July 2022, as a result of more loan applications for real estate.
The total amount of property loans approved during the month increased by 93 per cent y-o-y, due to the low base in August 2021 and the increased ratio of total authorised loans to total applied loans, which was 43.6 per cent in August 2022 compared to 37.5 per cent in August 2021.
"Overall, the higher approved loans are in line with our expectation of marginal recovery in new property sales for property developers. We also see a loan for the purchase of property in August 2022 to be in line with our expectation of marginal recovery for the sector.
"Nevertheless, we maintain our 'neutral' call on the property sector as residential overhang remains elevated in the second quarter of the calendar year 2022 (Q2CY22)," MIDF Research said.
According to data released by National Property Information Centre (NAPIC), residential overhang units eased to 34,092 units in the second quarter of the calendar year 2022 (Q2CY22) from 35,592 units in Q1CY22, attributed to the reopening of the economy.
"Note that residential overhang units increased to above 35,000 units in 4QCY21 due to disruption to economic activity from several lockdowns in Malaysia. Johor has the highest number of residential overhang units of 6,040, followed by Penang (5,508 units), and Selangor (5,156 units)," the firm said.
While the residential overhang is beginning to ease, MIDF Research believes that the property market may still be affected in some way by the remaining high overhang difficulties because the residential overhang units remained high in Q2CY22, staying above 30,000 units.
The company's top pick for the sector is Mah Sing Group Bhd, with a target price of RM0.74 per share, and IOI Properties Group Bhd, which is keeping its "buy" recommendation, has a target price of RM1.29 per share.
"We see a better earnings outlook for Mah Sing due to higher progress billing of its projects in Klang Valley while new sales outlook will be supported by its quick turnaround strategy. Meanwhile, we also like IOI Properties Group as earnings outlook is expected to support by earnings recovery of investment properties division and leisure & hospitality segments."