Kuala Lumpur : The worsening Covid-19 situation in Malaysia will derail property sales recovery as economic outlook turns uncertain with the re-imposition of the Conditional Movement Control Order (CMCO), according to MIDF Research.

Its analyst Jessica Low Jze Teing said visitation to the sales gallery would be low during CMCO period while buyer sentiment might turn weaker due to uncertain economic outlook.

"This could result in property sales to turn weaker in the fourth quarter of 2020 and may prompt property developers to revise downwards their sales target," she said in a report today.

Low said most of the developers had posted improved bookings figures post-MCO due to pent up demand and low interest rate.

However, the conversion of bookings into sales has been more challenging due to more stringent bank requirement.

According to loan statistic by Bank Negara Malaysia, the percentage of total approved loans over total applied loans for purchases of property in September and August stood at 34.8 per cent and 36.1 per cent respectively.

The data showed that it was below average approval rate of 42 per cent in 2019.

"Hence, the discouraging conversion of bookings into sales is expected to weigh on new sales figures of property companies in the second-half of 2020."

Low said property developers might turn less aggressive in their launches plan going forward due to the ongoing Covid-19 pandemic.

"That coupled with adverse impact of CMCO and discouraging conversion of bookings into sales should lead to weaker new sales prospect.

"As a result, we think earnings visibility of property companies could be weaker in the near-term due to potentially lower new sales to be recognized progressively."

According to data released by National Property Information Centre, unsold completed residential units in Malaysia resumed increase in the second quarter (Q2) of 2020 by increasing 6.6 per cent quarter-on-quarter to 31,661 units after posting four consecutive declines during the same period last year.

The increase in property inventory in Q2 of 2020 suggests oversupply issue in residential property market might resurface, she said.

"Johor remained has the highest number of residential overhangs with 6,166 units, followed by Selangor (4,865 units) and Perak (4,644 units).

"Rising property inventory would make property developers to be more aggressive in offering incentives for property buyers which may eventually eat into profit margin of property developers," Low added.

MIDF Research has downgraded the property sector to "Neutral" as the re-imposition of CMCO and resurgance of Covid-19 cases in Malaysia to derail the recovery of property sector.

"Property sales outlook is expected to turn weaker as buyers sentiment will be affected by the uncertain economic outlook.

"The renewed concern over property oversupply would also weigh on buying sentiment," she said.