Property (Overweight), ‘Tis The Season To Be Jolly About Mortgages
Our ground checks reveal that commercial banks are stopping their promotional mortgage rates. However, as they are aiming for double-digit mortgage growth rates next year, we expect them to re-introduce packages at lower rates as well – since the rates do not yet reflect the latest cut made by BI in Oct. Note that the combination of the relaxation of LTV thresholds and lower mortgage rates following the BI rate cut during 3Q16 resulted in a shifting of consumer preferences back to obtaining financing for properties via a mortgage.
¨ Promo on hold, but... we learnt that some banks are stopping their promotional mortgage packages this month. The current normal mortgage rate has a fixed interest rate of 9.5-10.25% for one year. Bank Central Asia (BCA) ($BBCA) is still offering the lowest mortgage rate with its latest Fix & Cap promotion, ie 7.99% pa fixed interest for the first three years and capped for a further three years at 8.99% pa. This is almost 50bps lower than what was offered in its previous Fix & Cap promotion. However, we believe IND Banks would continue to introduce lower mortgage rates in the future as:
i. Banks are aiming for double-digit growth in their mortgage segments in 2017. BCA and Bank CIMB Niaga ($BNGA) are aiming for 12% and 9-10% mortgage loan growth respectively;
ii. Based on research by rumah123.com, the most important factor in buying properties is the Bank Indonesia (BI) rate. Most buyers still utilise mortgage facilities to purchase properties. This is also reflected in the trend shifting back towards taking a mortgage as a payment method during 3Q16. This is due to a combination of the relaxation of the loan-to-value (LTV) thresholds and lower mortgage rates following BI’s rate cut.
As such, we expect banks to start re-introducing their respective mortgages at lower rates earliest by Jan 2017. Their current mortgage rates do not yet reflect the latest BI rate cut, which was made in October. Note, also, that presales activities in December are more moderate.
¨ Maintain OVERWEIGHT. We keep our OVERWEIGHT rating on the sector, as we expect a better outlook in 2017 as the following factors have already been priced in:
i. All the catalysts that include the tax amnesty;
ii. A potentially lower benchmark interest rate;
iii. The relaxation of the LTV threshold;
iv. The allowance for properties under construction to come under a second mortgage.
The share prices of property counters under our coverage have softened following public protests on 4 Nov that demanded incumbent Jakarta governor Basuki Tjahaja Purnama, commonly known as Ahok, be arrested for blasphemy. Share prices dropped further after the US election was concluded on 9 Nov. On average, share prices have plunged 9% YTD since 4 Nov. These numbers have recovered by 5% on average from their lowest level during the same period. Nonetheless, the sector is currently valued at a 65% discount to RNAV, or around -1.5SD from its 3-year mean of 56%, which looks compelling. (Lydia Suwandi)
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