Robust Loan Application In March, OPR Hike Short Term Impact Says MIDF

According to data released by Bank Negara Malaysia (BNM), loan applications for the purchase of property remained robust in March 2023, growing by +21% mom after double-digit growth in February 2023. Loan application in March 2023 jumped to the highest level in more than two years as buying interest on properties improved following a pause in OPR hike in January and March. On a yearly basis, loan applications in March 2023 increased by +10.8% yoy following a growth of +39% yoy in February 2023. Cumulatively, loan application in 1QCY23 was stronger as buying interest on properties was stronger following the reopening of the economy and country borders.

Total loans approved for the purchase of property climbed by +37.3% mom in March 2023 following an increase of +27.5% yoy in February 2023. Approved loans in March 2023 increased to the highest level in more than two years, spurred by higher loan applications and a higher percentage of total approved loans over total applied loans of 43.2% in March 2023 (February 2023: 38%). On a yearly basis, approved loans continued to grow in March 2023 by +18.3% yoy after an increase of +32.7% yoy in February 2023. Cumulatively, the 1Q2023 approved loan is higher by +10.9% yoy which the house thinks indicates a better new sales outlook for property developers.

OPR hike in May 2023 is a short-term negative to the sector. Bank Negara Malaysia increased OPR by 25 basis points to 3% on 3rd May 2023. As OPR normalized to a pre-pandemic level of 3%, MIDF said its economist expects that OPR of 3% to remain unchanged for the rest of 2023. OPR hike in May 2023 is slightly negative to the property sector as a higher interest rate is expected to lower buying interest on properties as a result of higher housing loan instalments. The house estimate that every 25bps increase in interest rate increases monthly instalment slightly by RM60-RM70 for a house loan of RM500k.

MIDF believes that the negative impact is short-term as OPR is expected to remain unchanged till the end of 2023. In short, the house said it may see a kneejerk reaction to loan applications in the coming months however the impact should be short-lived. The house maintains NEUTRAL on the property sector. The robust loan application and loan-approved data in March 2023 are positive for the sector as it signals a recovery in buying interest from several OPR hikes in 2022. Nevertheless, the robust loan application may take a breather in the coming months due to the OPR hike in May 2023. In a nutshell, we maintain NEUTRAL but with a positive bias on the property sector.

On top picks for the sector, the house said it still favours developers that focus on building projects in the mid-market and affordable segment as demand for affordable homes particularly those priced below RM500k remains resilient, supported by first-time home buyers. Top picks for the sector are Mah Sing Group (BUY, TP: RM0.75) and Glomac Berhad (BUY, TP: RM0.43) due to their high exposure to mid-market and affordable homes segments.