• We maintain our Neutral call on Property sector as we anticipate that the property market is poised to soften in the near future due to various significant factors, such as the potential for higher inflation, a more stringent lending approach, subsidy rationalisation, and an increase in Sales & Services Tax that could lead to higher living costs and lower disposable income.

• Under the Simen Rahmah Scheme, the Cement and Concrete Association of Malaysia (C&CA) has suggested to the Ministry of Local Government Development (KPKT) that they will provide 1mn metric tonnes of bulk cement at a cost of RM290 per metric tonne, which represents a 29.3% discount.

• Currently, we maintain a BUY call on Simeprop (TP: RM0.86) but revise our call on Mahsing to HOLD as the stock has now reached our valuation (TP: RM0.85).

The Enduring Challenge of Unsold Residential Properties

The 2022 NAPIC report indicates that Malaysia had an overhang of 27,746 residential units that year, amounting to RM18.41bn. This shows a marked improvement in the residential overhang situation from previous years, both in quantity and value. Overhang units decreased from 32,313 in 2018 to 29,565 in 2020, but then increased significantly in 2021 to 36,863. This fluctuation is also reflected in the total value of overhang units, which decreased from RM19.86bn in 2018 to RM18.92bn in 2020, before rising again in 2021 to RM22.79bn.

However, it is worth noting that, as of the first half of 2023, the overhang of residential units is at 26,286, with a combined worth of RM18.3bn. A similar downward trend is observed in the number of unsold units from 2018 to the first half of 2023. The count of unsold units under construction dropped from 80,984 in 2018 to 54,844 in the first half of 2023. In the same vein, the number of unsold units not yet constructed fell from 19,865 in 2018 to 7,927 in the first half of 2023. Interestingly, despite the overall decrease in unsold residential units, those priced below RM300k have consistently constituted the largest portion of unsold units from 2018 to the first half of 2023. The most noticeable reductions in unsold units were in the high-rise segment, particularly among units priced between RM500,000 and RM1mn. Despite the robust demand in the mass market housing segment, the share of newly launched residential properties priced RM500,000 and below in the first half of 2023 was significantly lower at 58% of total newly launched units. (2022: 71.1%).

Building Affordable Home with ‘’Simen RAHMAH’’

The bedrock of Malaysia's real estate market is built on a variety of construction materials, including bricks and mortar. Any cost variations in these materials can significantly impact the entire property sector. However, monitoring these price fluctuations can be a complex task. To tackle this issue, the Ministry of Local Government Development (KPKT), in partnership with The Cement and Concrete Association of Malaysia (C&CA) and private housing developers, has launched a fresh initiative called the Simen Rahmah Scheme. This scheme focuses on the creation of affordable housing priced at or below RM300,000, specifically designed for the B40 and M40 groups.

According to the 'Building Material Cost Index' report from Malaysia's Department of Statistics (DOSM) released in September 2023, the average cost of steel per metric tonne was RM3,620.05 in August 2023. This represents a slight decrease of 0.1 percent from the previous month, when it was valued at RM 3,622.85 per metric tonne. On the other hand, the average cost of cement experienced a minor increase of 0.2 percent, moving from RM 22.84 per 50kg in July 2023 to RM 22.89 per 50 kg in August 2023.

The Cement and Concrete Association of Malaysia (C&CA) has suggested to the Ministry of Local Government Development (KPKT) that they provide 1 million metric tonnes of bulk cement at a cost of RM290 per metric tonne. This is a notable decrease from the current market price of RM410 per metric tonne, representing a discount of RM120 per metric tonne or a significant 29.3% incentive. This cost will be entirely borne by the cement manufacturers. This provision, equivalent to 20 million standard 50-kilogram cement bags, will be accessible for developers to procure for their projects under the Simen RAHMAH scheme until June 2028, subject to the cement supply availability. At present, a bag of cement is sold at RM22.50 in the market, but with this scheme, the price drops to RM17.50, indicating a 22.2% or RM5.00 reduction per bag.

Source: BIMB Securities Research - 15 Nov 2023