PETALING JAYA: The property market is expected to remain cautiously optimistic in 2023, with the gradual increase in the Overnight Policy Rate (OPR) since last year likely to affect market activity, particularly on residential demand, says the Valuation and Property Services Department.
The outlook of the workforce in the construction sector and the increase in the price of building materials will also affect supply.
Department director-general Abdul Razak Yusak said internal and external factors, such as economic and financial developments both globally and in the country, would also have an impact on the real estate sector and the sentiment of industry players.
“Looking at the national economy which is projected to grow by 4% to 5% in 2023, supported by continued resilient domestic growth prospects, the property market is expected to remain cautiously optimistic in 2023,” he said.The first quarter of this year alone saw over 89,000 transactions worth RM42.31bil, which was higher than those recorded in pre-pandemic years, he said.
“The seasonal factor in house purchases, which is usually low at the beginning of the year, the increase in OPR and the decline in Consumer Sentiment Index (CSI) are among the factors that contributed to a decline in residential market activity in particular,” he said.
New residential launches, said Abdul Razak, were also indicating a cautious sentiment among developers, with the number recorded at nearly 4,700 units, which was less than those in previous years, while sales performance was moderate at 25.7%.
The decrease in new launches was in line with the decrease in the number of developers’ licences and advertising and sales permits of new housing sales and renewals approved by the Local Government Development Ministry from 5,641 in January and February last year to 2,911 during the same period this year, he added.
Johor recorded the highest number of new launches at 2,077 units or about 45% of the nationwide total with a sales performance of 24.9% while Selangor had the second highest at 791 units or 17% share with a sales performance of 37%.
Abdul Razak said in line with the cautious sentiment among developers, construction activity had slowed down in the first quarter of 2023.
“This is seen as a positive development to balance the unsold supply in the market,” he said, adding that the residential and serviced apartment overhang status continued to be positive.
“The number of overhang units has decreased to 26,872 units worth RM18.31bil in the first quarter of 2023 as a result of market absorption in all states, except Selangor. The volume and value of residential overhang decreased by 3.2% and 0.5% respectively compared with the fourth quarter of 2022,” he said.
Selangor recorded the highest number and value of overhang units, with 4,995 units worth RM4.47bil, followed by Johor at 4,759 units worth RM3.94bil, Kuala Lumpur with 3,423 units worth RM3.13bil, and Penang with 3,138 units worth RM2.48bil.
The purpose-built office (private) and shopping complex segment in Kuala Lumpur and Selangor, said Abdul Razak, should be given attention as there was a surplus of space, which was also expected to be severely affected by the inflow of new supply this year.This is as Kuala Lumpur recorded the highest available private purpose-built office space at 2.53 million square metres involving 290 buildings, followed by Selangor with 1.40 million square metres involving 192 buildings.
For the shopping complex segment, Selangor recorded the highest available retail space nationwide at 0.79 million square metres with 146 buildings followed by Kuala Lumpur at 0.56 million square metres with 97 buildings.
“Developers need to be more thorough and cautious before planning any new development and local authorities need to evaluate in detail before approving each new project,” said Abdul Razak.
Average NIMs of some local banks are expected to broaden slightly this year from the 2.28% registered in 2021.
Higher loan defaults, among individual borrowers and corporates, are expected to emerge as interest rate hikes to reduce inflationary pressures grip the economy.
Although the higher rates are good news for banks in terms of profitability, they may also result in loan defaults in the near term.
UCSI University assistant professor in finance Liew Chee Yoong, who is also a fellow at the Centre for Market Education, said the gross impaired loans (GIL) ratio would be higher due to the latest interest rate hike.
UCSI University assistant professor in finance Liew Chee Yoong
“The rise in interest rates will raise the interest expense of loan borrowers and increase their financial risk.
“Therefore, I will not be surprised if more individual and corporate borrowers will be in financial distress due to higher interest servicing this year.
“More loans will be impaired due to the higher likelihood of credit default by borrowers,” he added.
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The GIL ratio is defined as gross impaired loans as a percentage of gross loans, advances and financing.
Bank Negara has raised its overnight policy rate (OPR) by 25 basis points (bps) to 2.25% on July 6 amid positive economic growth prospects. It was the second consecutive increase after the 25 bps hike in May, which was also the first time the OPR was raised since the onset of the Covid-19 pandemic.
The OPR, which is a benchmark rate that allows banks to determine their lending and deposit rates, had been reduced by a cumulative 125 bps during the pandemic to a historic low of 1.75%.
RAM Rating Services Bhd co-head of financial institution ratings Wong Yin Ching said higher interest rates could impinge on some highly leveraged borrowers, although most borrowers would likely be able to absorb the slightly higher loan instalments.
RAM co-head of Financial Institution Ratings Wong Yin Ching, https://apicms.thestar.com.my/uploads/images/2022/07/11/1654838.jpg
“We may see the banking sector’s GIL ratio rise to 2.5% by end-2022, which is still deemed manageable in our view.
“Provisioning expenses, however, are not anticipated to increase in tandem with impaired loans as banks had judiciously built up provisioning reserves since the start of the pandemic.
“With most of the loan relief measures being progressively wound down in the first half of the year, defaults have begun to trend up,” she added.
The banking industry’s GIL ratio rose from 1.5% as of end-December 2021 to 1.64% as of end-May.
CGS-CIMB Securities analyst Winson Ng also expected higher GIL ratios this year.
“We expect the gross impaired loan ratio to increase 1.8% to 2% at end-December due to the credit risks from the Covid-19 and negative impact from higher inflation and interest-rate hikes.
“Headwinds, including higher inflation, could also be negative for asset quality and loan growth,” he said.
AmResearch banking analyst Kelvin Ong saw a gradual uptick in GIL ratio as the broad repayment assistance (including the Pemulih moratorium) had expired at end-June.
Asset quality ratio for the sector is expected to be higher at around 2% compared with 1.4% as of end December 2021, amid the transition towards targeted repayment assistance, according to him.
Commenting on the downside risk for the sector this year, Ong said: “Any prolonged or worsening supply chain disruptions will impact the pace of economic recovery and consequently affect our estimates for earnings growth of banks.
“Higher inflation pressures will impact consumer spending as well as profit margins of business loan borrowers which will lead to a potential deterioration in asset quality.”
Although most analysts expected the higher net interest margins (NIMs) to boost banks’ earnings from the latest OPR hike, UCSI’s Liew disagreed.
“I don’t think the higher OPR will improve the NIMs of banks. My prediction is that it will be reduced due to lowering demand for bank loans, which reduces the banks’ interest income and average earning asset value (that is, the amount of bank loans that are given out to borrowers).
“The increase in interest rates by the central bank will reduce the demand for bank loans from companies and individuals as the cost of financing becomes more expensive,” he said.
On the other hand, Liew said lenders would need to continue paying interest to risk-averse depositors who put their monies in banks during an economic uncertainty and this would reduce the NIMs.
According to RAM’s Wong, rising interest rates are a boon to NIMs as a majority of the domestic banking industry’s loans are floating-rate facilities, which would reprice faster than deposits.
That said, Wong added that the uplift in NIMs would be moderated by the increasingly deposit competition, as well as slower current and savings account expansion as some depositors go for term deposits.
Overall, Wong said the average NIMs of some local banks are expected to broaden slightly this year from the 2.28% registered in 2021.
NIM is a measure of the difference between the interest income generated by banks and the amount of interest paid out to deposits.
CGS-CIMB’s Ng, who forecast loan growth of 4% to 5% for this year, is projecting a 4% net profit growth, mainly driven by the OPR hike and lower loan loss provisioning.
Ong is maintaining a loan growth projection of 5% to 6% this year, premised on an expected gross domestic product expansion of 5.6% this year.
With the additional taxes due to Cukai Makmur or prosperity tax, the earnings growth for banks are expected to be flat at 1.5% this year, according to Ong.
THE Association of Banks in Malaysia (ABM) would like to remind members of the public to remain vigilant at all times to safeguard personal information. This includes avoiding downloading files or applications from unverified sources onto mobile devices.
ABM would like to draw the public’s attention to the safety measures recommended by the Malaysia Computer Security Response Team’s (MyCERT) security advisory, published recently.
Here are some of the safeguards recommended by MyCERT:
> Do not install any app or Android package kit (.apk) file from unknown sources. This is because it may be malware designed to steal your personal details and your online banking credentials.
> Do not click on adware or suspicious URLs sent through messaging services.
> Do not root or jailbreak your device.
> Verify an application’s permission settings and the application’s author or publisher before installing it.
> Only download apps from official sources.
> Do install antivirus software on your devices and run it regularly.
> Update your device’s operating system and apps regularly.
With cybercriminals and online fraudsters constantly changing their methods, ABM would also like to urge the public to remember the following:
> Never divulge your personal details and/or banking credentials to unknown or unverified parties.
> Never disclose your transaction authorisation code (TAC) or personal identification number (PIN) or your online login username and password to anyone.
> Never click on any links to banks’ websites that are sent from unknown, suspicious or unverified emails. Always key in your bank’s website address directly into the URL bar in your Internet browser or use your bank’s official mobile app.
> Avoid websites offering products at prices that are too good to be true and are littered with spelling mistakes – these tend to be fraudulent sites.
> Avoid using public or open WiFi networks for online banking.
> Always ensure that the banking website or banking app that you are using is genuine and official.
> Always refer to your bank’s official website or contact your bank’s hotlines (stated on the back of your credit card or on the banks’ websites) directly for information, verification and clarification when in doubt.
Bank account holders are also advised to monitor your statements as well as transaction alerts from the banks closely.
If you notice any unusual or suspicious transactions, contact your bank as soon as possible to report it. Next, lodge a report with the police. Thereafter, notify the bank in writing with a copy of the police report and all relevant records and documentation, such as transaction history, etc. Due investigation processes are in place to determine if the reported transaction is indeed unauthorised.
ABM would like to reiterate that member banks are required to adopt high standards of security, including for Internet and mobile banking services. Routine security reviews and advisories are also issued by Bank Negara Malaysia to financial institutions to ensure adequate protection against the latest threats.
The public are advised to keep informed of emerging threats through the advisories issued by financial institutions, Bank Negara Malaysia and other authorities to protect themselves. Information on the latest threats and measures that you can take to protect yourself against cybercriminals and online fraudsters can be obtained from abm.org.my/consumer-information/fraud-alerts.
Session 1 : #SOS: How Budget 2022 Can Drive Your Business Forward
The session will address: – SME portfolio financial restructuring – How the Government’s 2022 budget can help you rebuild or drive your business forward – Government’s focus in strengthening public healthcare, rebuilding socio-economic and economic resilience
Speakers: 1) Datuk Dr. AT Kumararajah , Secretary General, MAICCI 2) Jenny Hoh, Vice President of SME Advisory and Marketing, CGC 3) Yip How Nang, Head of SME Banking, RHB Bank Berhad
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Speakers: 1) Shirley Tay, President, MRCA 2) Pang Kong Chek, Chief FInancial Officer, PKT Logistics Group Sdn Bhd 3) Kevin Lee, Head of SME, Maxis Business
