Investment Highlights

• The MADANI economic framework forms the core of housing-related policies. Budget 2024 is scheduled to be tabled tomorrow by our Prime Minister and Minister of Finance, Dato’ Seri Anwar Ibrahim. From our view, most of housing-related policies in the upcoming budget will conform to the MADANI economic framework, which envisions a prosperous nation and balance for all Malaysians. These policies will also align with the objectives set forth in the 12th Malaysia Plan (12MP) (2021-2025) Mid-Term Review (MTR). As such, we believe Budget 2024 will primarily focus on topics such as promoting homeownership, enhancing housing affordability, boosting development in Iskandar Malaysia and reaffirming commitments to major infrastructural projects outlined during 12MP MTR.

• The property sector is set to gain advantages from Budget 2024. We anticipate that Budget 2024 will have a positive impact on the property sector due to the government's ongoing support for homeownership and positive development in major infrastructural projects. Other positive catalysts include the development of Iskandar Malaysia and potential relaxations of MM2H program.

• Boost homeownership among low-to-mid income group. We foresee the government to continue supporting homeownership for the B40 and M40 income groups with a particular focus on first-time homebuyers. We expect the government to broaden the scope of rent-to-own (RTO) schemes for accessibility to a wider range of individuals within the B40 and M40 income groups.

• Extension of stamp duty exemption for first-time homebuyers. To promote homeownership, we believe there is a high chance for the extension of the previously introduced 75% stamp duty exemption for houses priced at RM500,000 to RM1,000,000 under the Malaysian Home Ownership Initiative (i-MILIKI), which is set for expiry by end-2023. To recap, iMILIKI offers 100% stamp duty exemptions for first-time home buyers for properties priced below RM500k (expiry by end- 2025) and 75% exemptions for properties priced between RM500k to RM1mil (expiry by end-2023).

• Anticipated updates on the development of SEZ. Malaysia and Singapore are expected to finalise the Terms of Reference (ToR) on the proposed Johor-Singapore Special Economic Zone (SEZ) after discussions between the leaders of both countries in October 2023. Hence, we expect the government to reveal more information about the planned JohorSingapore SEZ in the upcoming budget.

• The introduction of Greater Johor Bahru concept. Malaysian Deputy Minister of Investment, Trade, and Industry, Liew Chin Tong, has proposed the concept of Greater Johor Bahru to the government, encompassing the Iskandar Malaysia region. Liew envisions that Budget 2024 will cater to the development of Greater Johor Bahru, positioning it as Malaysia's second metropolitan city after the Klang Valley. While comprehensive details are currently unavailable, Liew has indicated a keen interest in the development of the electric vehicle (EV) sector. Johor has the potential to emerge as a hub for EVs, especially considering Singapore's ambitious goal to transition to a fully EV population by 2030 under its Green Plan 2030.

• Furthermore, we anticipate the government to reiterate its commitment to providing more details on infrastructural projects outlined in 12MP MTR. These projects include the Bayan Lepas Light Rapid Transit (LRT) in Pulau Pinang, upgrading of the Senai-Desaru Expressway and North-South Expressway, the construction of SarawakSabah Link Road II and Sabah Pan Borneo Highway Phase 1B, as well as the expansion of Bus Rapid Transit (BRT) and intracity bus services. Also, there is a possibility for the government to announce the implementation of Mass Rapid Transit 3 (MRT3) and the potential revival of KL-Singapore High-Speed Rail (HSR).

• Another policy that could be announced is the potential relaxation of requirements for the Malaysia My Second Home (MM2H) programme. As a part of the Madani economic framework, Malaysian government is currently reviewing and considering relaxing the conditions for the MM2H programme. Notably, MM2H programme saw a 90% drop in applicants since 2021 due to stricter conditions and forced foreigners to opt for other countries including Thailand, which offers a similar programme called the Thai Elita Visa. The potential positive revisions are expected to attract a larger number of foreign property purchasers and address overhang issues in Malaysia, particularly in Kuala Lumpur, Johor and Penang, which have been popular destinations for foreigners seeking to reside in the country.

• Remain OVERWEIGHT on property sector. Since the beginning of 2023, Kuala Lumpur Property Index (KLPRP) has outperformed Kuala Lumpur Composite Index (KLCI) with a gain of 36% vs. KLCI’s loss of 4% (Exhibit 3). Moving forward, we expect a gradual recovery in property transaction volumes on improved market sentiments and stronger demand, aided by our economist’s estimated 2024F GDP growth of 4.5% and job recoveries.
  
  Transaction activities for residential property are expected to see further improvement, in line with the government’s effort to increase more affordable houses as outlined under the 12MP MTR and the MADANI Neighbourhood scheme. In addition, the implementation of the New Industrial Master Plan (NIMP) 2030, designed to raise investments into the country, is anticipated to bolster demand for industrial properties.

• Key risks for the sector: i) Stagflation which could lead to higher unemployment alongside accelerated inflation, posing downside risks to property demand; ii) a potential new wave of pandemics, which could disrupt business operations and construction progress; and iii) any prolonged or worsening of supply chain disruptions, which will impact the pace of economic recovery and heighten the cost of building materials.

• Key considerations for downgrading the sector to NEUTRAL: i) worsening of labour shortages; ii) higher-than-expected building material costs; and iii) further deterioration in consumer sentiments.

• Our top BUY is Sunway (FV: RM2.42) given its strong brand recognition established by highly successful landmark developments and expanding healthcare business, supported by substantive unbilled sales and outstanding order book. We favour Lagenda (FV: RM1.79) for its focus on the underserved and affordable landed housing development in second-tier states which have a large population of B40 and M40 income groups. We also like Mah Sing (FV: RM0.98) for its strength in affordable housing developments at strategic locations as well as savvy execution and quick-turnaround business model.

Source: AmInvest Research - 12 Oct 2023