MyDeposit to aid middle-income first-timers to buy homes

On Wednesday, Prime Minister Datuk Seri Najib Razak (pictured) announced the launch of the First Home Financing Scheme (MyDeposit) as tabled in Budget 2016. He said the scheme is to help the middle 40% income bracket with household incomes of between RM3,000 and RM10,000. It involves a contribution of 10% of the sale price or a maximum of RM30,000, whichever is lower, to first-time house buyers to help them buy a house not more than RM500,000.

In order to encourage private developers to build houses costing below RM300,000, Najib said several incentives had been offered them, including the retention of deposits of RM200,000 from 3% of the estimated cost at present.

We think this is likely beneficial to developers of affordable houses, such as Hua Yang Bhd and Matrix Concepts Holdings Bhd, whose main product segments are priced below RM500,000 per unit.

New supply of houses priced below RM500,000 per unit will be tougher to come by in Selangor as the state government has frozen approvals for serviced apartments, small office home office and small office virtual office units. Generally, affordable products such as these are governed by plot ratios rather than density, enabling developers to build smaller units that are affordable for buyers while still being able to maximise project returns.

It will benefit developers in the Selangor area as they already have the right type of land bank and obtained approvals for such projects.

Impact on big players will be muted as more developers are launching affordable homes priced between RM300,000 and RM500,000. Most of their sales are for houses priced above RM500,000.

Additionally, developers would not have affordable developments on their prized land banks as this would mean not maximising returns for shareholders.

The MyDeposit scheme addresses issues of first-time homebuyers struggling with financing upfront deposits. However, first-time homebuyers may still face higher loan rejection rates as their credit criteria is typically on the weak side.

We think some changes are needed in the banking loan assessment criteria if MyDeposit is to work more smoothly.

While we laud the government for coming up with MyDeposit, we still believe that the issue with affordable housing is the supply of affordable land banks in the right location.

Developers are willing to help increase supply [of affordable homes] if such land banks are available. Furthermore, there are more secondary-market properties priced below RM500,000 at the moment.

As for the incentives for developers, we think the impact will be muted for listed developers as they do not see this as a major issue. It would be more beneficial to much smaller-scale developers with challenging cash flows.

Overall, we are neutral to positive on the news because we are seeing the right solutions being deployed by the government, but expect the impact to be selective as mentioned above. We continue to maintain “underweight” on the sector, as it is going through a structural change that is beyond a demand-supply issue while there is no easy monetary solution in sight.

We reckon that if MyDeposit is extended to homes up to RM600,000 per unit for the same income criteria, the impact will be more significant as developers will be able to release more of such products given their types of land banks. — The Edge Property (Kenanga Research, April 7)