By Roznah Abdul Jabbar
Despite the economic headwinds, both Malaysian banks and property developers are resilient to possible shifts in sentiment and falling property prices, according to Moody’s Investors Service.
Moody’s Senior Vice President Stephen Schwartz said that Malaysia can expect a soft landing for property prices, supported by stable housing demand from middle-income households and robust, albeit decelerating GDP growth.
“After several years of rapid gains in residential property prices, macroeconomic conditions in Malaysia are turning less positive for the property market,” he said.
However, he said that Malaysian developers and banks should be resilient to downward property price pressures.
In its latest report, Malaysia’s Property Sector Risks Are Manageable for Banks and Developers, Moody’s said that Malaysia has seen a rapid rise in residential property prices, of more than 40% in real terms since early 2009, against a backdrop of increased urbanisation, rising living standards and a long period of low interest rates. Such a price increase has generally outpaced that of Malaysia’s neighbours.
Moody’s nevertheless expects Malaysia’s GDP growth to decelerate to a still-solid 4.5%-5.0% in 2015, from 5.8% in 2014.
However, previously implemented cooling measures, a forthcoming Goods and Services Tax and tighter lending conditions will all add to a downward pressure on housing prices.
Moody’s Vice President Senior Credit Officer Eugene Tarzimanov said Malaysian banks are well-positioned to weather a soft landing in property prices.
However, he said mortgages with high loan-to-value ratios and loans to over-leveraged households and developers are at greater risk of payment slippage.
“While delinquencies on mortgages and construction-related loans will likely increase from their current multi-year lows, Malaysian banks have robust capital buffers and healthy pre-provision profitability,” he said.
He added that the credit quality of property-related loans is generally good, supported by prudent loan-to-value ratios and low unemployment rates. As such, Malaysian banks are well-positioned to weather the gloom.
The report said that the middle-income households will also be the key to Malaysia’s largest listed property developers’ resilience as property price growth slows.
“While sales volumes will moderate, they will remain supported by developers’ product offerings that are targeted at middle-income households. Overseas projects will also buffer developers from the domestic deceleration in price growth,” the report said.
However, Moody’s expects developers focused on residential projects located in urban states such as Johor, Kuala Lumpur, Selangor and Penang to be more challenged.