Downgrade to “neutral”: We expect the 2015 property transaction volume to fall by 3% to 5% on the back of slower economic growth and high loan rejection rate, while property prices will stay flat as developers will likely have difficulty in passing on incremental costs. We estimate new sales will drop by 10% to 20% from -25% in 2014. We expect overall residential and commercial property transaction volume to fall by 5% to 10% in the first half of 2015 (1H15), against a rise of 2.8% half-on-half (h-o-h) in 1H14 and 3% to 5% for 2015.
The decline should be more severe in the second quarter of 2015 (2Q15) immediately after the implementation of the goods and services tax (GST) from April 1. Based on Singapore’s experience, after the GST rate was raised to 7% from 5% in July 2007, residential property transaction volume contracted by 41% h-o-h in 2H07. The Malaysian market should experience a similar, milder trend.
RHB’s economics team has cut its 2015 gross domestic product (GDP) growth forecast to 5% from 5.3%, compared with 5.8% in 2014. The slower economic growth and the recent sharp drop in equity prices are hitting market sentiment. We expect this to dampen the demand for property next year. Average new sales are expected to drop by 10% to 20%. We believe both buyers and developers will adopt a wait-and-see attitude, hence launches and take-ups will likely be slow. As we expect property prices to be flat or up slightly by 3% to 4%, given lower volume, we estimate new property sales to fall by an average 10% to 20% in 2015 from -25% in 2014 and +41% in 2013.
Developers’ earnings growth in financial year 2016 (FY16) should be negative, or flattish at best. The Penang property market could fare better as the weakening ringgit should benefit exports and tourism, the key economic activities of the state. — RHB Research, Dec 12
This article first appeared in The Edge Financial Daily, on December 15, 2014.