New special ‘step-up’ end-financing scheme PR1MA

Property sector

Maintain neutral: In the Budget 2017 announced last Friday, the government announced a new special “step-up” end-financing scheme for PR1MA (1Malaysia People’s Housing Programme). Through this scheme, financing will be easier and more accessible to buyers with total loan up to 90% to 100% and loan rejection rate to be reduced drastically. Stamp duty exemption will also be for first-time homebuyers. Stamp duty exemption will also be increased to 100% (from 50%) for house purchases and loan, but this is restricted to houses with a value of up to RM300,000 for first-time homebuyers.

We believe that these measures should relieve the burden of first-time homebuyers slightly. However, the public listed developers will not benefit significantly as almost all of their products are in different price categories.

There will be an increase in stamp duty on real estates above RM1 million. The rate of stamp duty on instruments of transfer of real estates worth more than RM1 million will be increased from 3% to 4% effective 1st January 2018. This measure is expected to affect sales of high-end houses from 2018 onwards. However, we believe there will be a slight short-term increase in demand to buy ahead in 2017 before the new measure takes effect.

There will be no increase in Employees Provident Fund (EPF) Account 2 allocation for home financing. Before Budget 2017, the media has reported on the possibility of increasing the fund from EPF Account 2 to 40% (from the current 30%). This is aimed to assist first-time homebuyers in house financing. However, this is not mentioned in the Budget 2017 speech and hence the current 30% allocation to Account 2 in the EPF account stays. We are neutral on this as the status quo allocation remains.

There is no change to the real property gain tax (RPGT) rate. As for developer interest-bearing scheme (DIBS), it is still disallowed. We are “neutral” on the unchanged RPGT rate as this means that the government may view that the current policy is working and hence there is no further cooling measures needed. Having said that, the DIBS ban stays and this means little cheer for property developers as well.

Recent data shows that the dynamics of the sector is still weak; maintain “neutral” in the property sector. The latest Bank Negara statistics show that the “Approved Loan for Purchase of Property” in August 2016 decreased 5% year-on-year (y-o-y) to RM11.28 billion. The decline in approved loan was mainly due to lower approval rate by the banks. However, an 8% improvement was seen on a monthly basis. We maintain our “neutral” view on the sector due to lack of catalysts seen from Budget 2017 as well as weak performance seen from recent data.

UOA Development Bhd is downgraded to “neutral” with an unchanged target price of RM2.68. Since we upgraded the stock to “buy” on June 23 when the share price was at RM2.16, it had gained 25% to RM2.70 as of 21 Oct. As its share price has appreciated substantially, coupled with lack of catalysts from the Budget 2017, we thereby downgrade the stock to “neutral”. — MIDF Research, 24 Oct

This article first appeared in The Edge Financial Daily, on Oct 25, 2016. Subscribe to The Edge Financial Daily here.