Worst yet to come for developers: Citi

The research house notes that more developers are providing more incentives and rebates to attract homebuyers

CITI Investment Research continues to hold a negative view on Malaysian developers, saying that the sector's worst is yet to come.

"We noticed that more developers are joining in the bandwagon to provide more incentives and rebates. Clearly a sign of more difficult times and a reflection of significant drop in monthly sales," the foreign research firm wrote in a report dated February 13 2009.

During the 1998 financial crisis, residential property transactions fell by 30 per cent, it added.

Citi cited SP Setia Bhd, which has been aggressive in advertising its 5/95 home loan package in both the newspapers and putting up banners in town. This package will last until April 19.
Under this package, a buyer makes a 5 per cent downpayment (versus 10 per cent normally) with no other cash outlay until property is handed over. SP Setia will bear all legal fees, stamp duty on the sale and purchase agreement, loan agreement and memorandum of transfer and also service the interest during the construction period.

Mah Sing Group Bhd has an almost similar financing plan, which will last until March 31.

"Based on our computation, the impact on margins for a developer that provides such a package would be 7 per cent based on property price of RM500,000.

"If assuming 25 per cent margin for the RM500,000 property, the 5/95 package would slash margin by 7 per cent to 18 per cent," said Citi.

Citi said while the promotion looks attractive for homebuyers, banks will bear the risk of holding the property in two years time if the buyer decides to forfeit the 5 per cent deposit and walk away from the deal. The banks in SP Setia's panel are Malayan Banking Bhd, Bumiputra-Commerce Holdings Bhd, EON Bank Bhd and Public Bank Bhd.

By Business Times