BY Roznah Abdul Jabbar
RAM Ratings Services Bhd has maintained its negative outlook on the Malaysian residential property sector and the commercial (office and retail) sub-segments in Kuala Lumpur and Selangor this year.
In its sector commentary report, the agency said consumer and business sentiment is expected to remain muted amid a slowing economy while lending conditions are likely to stay tight, thus presenting another challenging year for the property sector.
“The Malaysian property sector was subdued last year, as demand waned on the back of a decelerating economy, softer consumer and business sentiment, and tight financing conditions,” it said.
Accordingly, RAM said, overall residential property transactions contracted 5 per cent y-o-y in 2015, with a steeper 21 per cent decline for the primary market. The aggregate sales of eight leading developers tracked by RAM also decreased 15 per cent y-o-y due to the downbeat market and cautious sentiment.
“Meanwhile, transaction value retreated 10 per cent y-o-y – the first drop since 2005. The Malaysian House Price Index, while still trending upwards, has also tapered to a low single-digit growth. Moreover, residential property overhang has been creeping up in the last two quarters,” the agency said.
The report said that the commercial sub-sectors in KL and Selangor also weakened, with occupancy rates retreating 1 to 3 percentage points y-o-y in 4Q 2015 as supply continued outpacing demand.
“Rental rates for offices were reportedly flat while prime malls managed to eke out a very modest rental increase,” RAM said.
The report said that demand is expected to stay muted as the economy slows and consumer and business sentiment remains subdued.
“Tight lending conditions are likely to continue given the lingering concerns about the nation’s elevated household debt levels,” RAM said.
The imbalance within the commercial sub-sectors is expected to persist, particularly given the cautious sentiment within the finance and oil & gas sectors – traditionally the key take-out sources for office space in the Klang Valley.
“Nevertheless, the credit metrics of RAM-rated property players are expected to stay stable as the majority of our rated entities have raised debt financing guaranteed by financial institutions,” RAM said.
On a stand-alone basis, the credit profiles of its rated developers are also stable, supported by robust locked-in sales, a focus on more affordably priced homes and the flexibility arising from cheap land bank.
“Meanwhile, the stand-alone credit strength of our rated REITs and mall owners are largely stable, underpinned by long leases, assets of good quality and the sturdy market positions of their malls,” RAM added.