• Property sector staged an impressive comeback from the pandemic in 2023. The industry exhibited resilience and regained its momentum, buoyed by government support and a sense of optimism among buyers and developers.

• Property sector may prioritize addressing the housing needs of the middle and lowerincome households in 2024, focusing on affordable homeownership.

• We maintain a NEUTRAL recommendation on property sector, taking into account the potential impact of higher interest rate environment, inflationary pressures, subsidy rationalization initiative, and tightened credit quality, which could potentially limit consumer confidence and purchasing power.

Affordable Housing Initiatives Powering Property Market Growth. As per NAPIC, there was a marginal decrease of 2.18% in the number of unsold residential properties in Malaysia, dropping from 26,872 units in 1Q23 to 26,286 units in 2Q23. Furthermore, the total number of residential property transactions below RM600k saw a YoY decline of 1.8%, falling from 99,284 in 1H22 to 97,466 in 1H23.

Nonetheless, we expect demand for housing to remain robust particularly in the affordable housing segment. During the mid-term review of the 12th Malaysia Plan (12MP), Prime Minister Datuk Seri Anwar Ibrahim announced Malaysia's goal to construct 500,000 affordable homes by the end of 2025. A total of 108,373 affordable homes had been constructed by the end of 2022. Developers who engage in the construction of affordable housing projects in Malaysia stand to gain from various benefits, including incentives such as cement subsidies (Simen Rahmah) provided by the Cement & Concrete Association Malaysia to encourage and support affordable housing development.

The recent 2024 Budget unveiled a substantial initiative designed to enhance the accessibility of homeownership, especially for first-time buyers and those with fluctuating income. The government earmarked RM10bn for the Housing Credit Guarantee Scheme, which will assist 40,000 borrowers. This program is intended to tackle the financial obstacles encountered by individuals with unpredictable earnings, including gig workers, freelancers, independent business proprietors, small traders, and entrepreneurs, who may encounter difficulties in meeting the requirements for conventional mortgage funding. The government's current incentive of 100% waiver on stamp duty for the transfer instrument and loan agreement for properties valued at RM500,000 and below until the end of 2025 promotes first-time home ownership and residential real estate growth, potentially saving homebuyers around RM11,500 for properties priced at RM500,000. This policy is expected to drive sales of new properties priced at RM500,000 and below, given the impact of rising lending rates.

Multiplier effect from infrastructure projects. The allocation of Development Expenditure in Budget 2024, which includes major infrastructure projects such as the expansion of the Sedenak-Simpang Renggam PLUS highway, the resumption of building 5 LRT3 stations, and the construction of the LRT from Penang to Seberang Perai, is set to have a significant impact on residential property market in Malaysia. These developments are expected to spur mixed-use development in the surrounding areas, potentially leading to an increase in property values and a surge in demand for residential real estate. Additionally, the potential announcements regarding the implementation of Mass Rapid Transit 3 (MRT 3) and the revival of the Kuala Lumpur-Singapore high-speed rail (HSR) could further contribute to positive sentiment and heightened activity in the Malaysian residential property market.

Cautiously optimistic on property outlook. Although there are positive catalysts for affordable housing, challenges still persist in 2024 due to 1) concerns about potential oversupply of properties in certain regions or market segments, 2) rising living cost from the gradual implementation of the targeted subsidy mechanism and selective hike in Sales & Service Tax (SST) from 6% to 8% in Budget 2024, 3) higher construction cost from weak Ringgit and higher global commodity prices, and 4) tightened credit quality on the back of higher interest rates imposed by financial institutions.

Maintain Neutral. Property market is poised to soften in the near future due to factors mentioned as above. Nevertheless, we hold a favorable perspective on developers who have demonstrated a strong history of generating sales and possess a reputable brand, especially with substantial land holdings in desirable locations and minimal holding costs. We maintain a BUY call on Simeprop (TP: RM0.86) and a HOLD recommendation on Mahsing (TP: RM0.87). In light of strong price rally recently, we suggest investors to accumulate the stock on dip.

Source: BIMB Securities Research - 23 Jan 2024