• Sustainable Growth in 2024’s Residential Property Market. Malaysia's property market showcased robust growth and resilience in the 1H24, with total transaction value reaching RM105.65bn, a 23.8% YoY increase and the highest in 5 years. This surge highlights renewed investor confidence and heightened market activity. Amid this growth, the long-standing challenge of unsold housing stock appears to be easing. Residential supply overhang declined to 22,642 units, valued at RM14.24bn, marking a reduction of 12.3% from the preceding period and 13.9% compared to the previous year. This positive trend reflects improving demand and strategic measures taken by developers to align supply with market needs. In tandem with these developments, Malaysia continues to make significant strides in addressing housing affordability.
  
  Furthermore, the Housing Credit Guarantee Scheme (HCGS), a crucial initiative to expand homeownership opportunities, has approved 65,818 applications with total loans amounting to RM14.975bn since its inception in 2008 up to August 2024. This scheme continues to empower Malaysians, particularly those without fixed incomes, to secure financing for home purchases. Together, these trends signal a resilient property market and a steady march toward improved housing accessibility in Malaysia.

• Affordable Housing to Gain the Greatest Benefit in 2025, in Our View. The government has launched several initiatives to enhance homeownership accessibility, particularly for first-time buyers. These efforts aim to fulfil the 500,000-unit affordable housing target under the 12th Malaysia Plan by 2025, with 56,741 units still needed. Key government initiatives to support affordable housing and first-time homebuyers include: 1) The Housing Credit Guarantee Scheme (HCGS), offering up to RM10bn in guarantees for 20,000 buyers, including those without fixed income, 2) A 100% stamp duty waiver for properties priced below RM500,000, and 3) A Housing Tax Relief initiative in Budget 2025, offering tax relief of up to RM7,000 for properties under RM500,000 and up to RM5,000 for properties between RM500,000 and RM750,000, applicable for agreements completed between 1st January 2025 and 31st December 2027.

• Increase Consumer Purchasing Power Expected in 2025. We expect consumer purchasing power to rise following a salary hike for civil servants, effective 1ST December, 2024. This measure, which will cost the government RM10bn, is expected to benefit 1.6mn civil servants. Among the property companies under our coverage, Lagenda Properties is poised to benefit the most, as 60% of its buyer profile consists of civil servants. Additionally, the government has agreed to increase the minimum wage rate from RM1,500 to RM1,700, effective 1ST February, 2025. This adjustment may help firsttime homebuyers save for down payments or qualify for mortgages, particularly in the lower-priced housing segments. The strength of consumer purchasing power is also reflected in the sustained growth of Malaysia’s mortgage market. As of October 2024, outstanding loans for residential property purchases had increased by 7.2% YoY, reaching RM827.7bn, according to data from Bank Negara Malaysia (BNM). 

• NIMP 2030 is Expected to Transform the Industrial Property Landscape. The National Industrial Master Plan (NIMP) 2030 aims to enhance Malaysia's industrial capabilities in advanced manufacturing, high-tech industries, and automation, thereby driving demand for industrial properties in strategic areas. This growth in domestic and foreign direct investment (FDI) is expected to increase demand for both industrial and residential properties, subsequently raising property values and rental rates, with Industrial REITs likely to benefit. Industrial properties recorded a rise in market activity, with 6,320 transactions worth RM20.7bn in the 9M24. Compared to the same period last year, market activity increased by 7% in volume and 22% in value (9M23: 5,934 transactions worth RM16.9bn). We believe property market players are likely to adjust their investment strategies toward acquiring and developing properties suitable for data centers, such as large industrial plots with reliable power and cooling systems. Companies like Mah Sing Group are capitalizing on this trend with projects like the Mah Sing DC Hub in Southville City (150 acres/500 MW) and plans for a 300 MW data center in Johor Bahru. Similarly, Sime Darby Property has secured two long-term data center leases in Elmina Business Park (1,500 acres industrial land bank), valued at RM7.6bn, highlighting the growing role of data centers in Malaysia's industrial real estate sector.

• Spill over Effects Infrastructure and Mega Project. Moving forward, we anticipate that more infrastructure and mega projects in the pipeline will positively impact Malaysia's residential property market by spurring mixed-use developments. These include major projects such as the Sedenak-Simpang Renggam PLUS highway expansion, the resumption of LRT3 stations, the construction of the Penang LRT Mutiara Line, and the high-potential rollout of the Johor Automated Rapid Transit (ART). These initiatives are expected to increase property values and boost demand for residential real estate. Additionally, potential announcements regarding the Kuala Lumpur-Singapore highspeed rail could further enhance market sentiment and activity.

• Key Risk. Key risks to the sector include: (i) an unforeseen rise in the overnight policy rate (OPR) could lead to higher interest rates, resulting in increased mortgage repayments; (ii) a growing gap between wages and property prices can limit market participation, particularly among young people and first-time homebuyers; (iii) policy uncertainty in Malaysia has led to periodic cooling measures, like the Residential Property Gain Tax and foreign buyer restrictions. Further tightening, such as taxes on vacant properties or stricter foreign ownership limits, could reduce demand, especially in prime locations.

• Top Pick: Mah Sing (BUY, TP: RM2.19). We favor Mahsing, as the company continues to demonstrate strong earnings prospects, driven by the solid sales momentum of its MSeries projects. The company remains committed to expanding its landbank with a strategic focus on fast-turnaround opportunities. The company plans to grow both its residential and industrial portfolios. Strategically positioned in the affordable residential market, Mah Sing continues to manage a substantial landbank of 2,403 acres, with a remaining GDV of RM27bn. We maintain a BUY call on Mah Sing with a TP of RM2.19, based on a SOP valuation with a discount to the RNAV at 35% and included the data center (DC) value at 19x EV/EBITDA. We like Mah Sing due to 1) the company's strong fundamentals and ongoing land acquisitions, which contribute to a quick turnaround and enhance visibility for sustainable long-term earnings; and 2) the diversification of revenue streams by leveraging its land bank to generate recurring income from data centers.

• Maintain OVERWEIGHT on Property sector. We expect the property market to remain resilient, driven by affordable housing incentives, increased disposable income, strong growth in industrial property, and ongoing infrastructure projects. We are favorable towards developers with a strong sales history, reputable brands, substantial land holdings in desirable locations, and minimal holding costs. We maintain an OVERWEIGHT stance on Property sector, with BUY calls on Mahsing (TP: RM2.19), Simeprop (TP: RM1.73), Lagenda (TP: RM1.48), and a HOLD call on Matrix (TP: RM2.15). Given the recent price rally, we recommend accumulating these stocks on dips.

Source: BIMB Securities Research - 2 Jan 2025