• Property sector rebounded impressively in 1H24, driven by strong government support, improving economic conditions, rising urbanization, and renewed optimism among buyers and developers.

• Property sector outlook for 2024 may prioritize the middle and lower-income households for affordable homeownership.

• We maintain an Overweight recommendation on property sector, following series of affordable housing incentives, increased disposable income, and ongoing infrastructure projects, which could potentially boost consumer confidence and purchasing power. Simeprop (Buy; TP: RM1.21) is our Top Pick.

Affordable Housing Incentive Fuels Market Growth. NAPIC reported that there was a 6.23% decrease in unsold residential properties in Malaysia, dropping from 25,816 units in 4Q23 to 24,208 units in 1Q24. This decline corresponds with a 6% QoQ reduction in total residential property transactions. Despite this, YoY transactions saw a significant increase of 16.5%. Additionally, properties priced below RM500k continued to dominate the market, accounting for 78% of the total market share. The 2024 Budget introduced a major initiative to improve homeownership access, especially for first-time buyers and those with variable incomes. The government allocated RM10bn to the Housing Credit Guarantee Scheme, aiding 40,000 borrowers. This program addresses financial challenges faced by gig workers, freelancers, small business owners, and entrepreneurs who struggle with traditional mortgage requirements. Additionally, the government's 100% stamp duty waiver on transfer instruments and loan agreements for properties priced at RM500k or below, valid until the end of 2025, is expected to boost first-time homeownership and stimulate residential real estate growth. This waiver could save homebuyers about RM11,500 on properties priced at RM500k, countering the effects of rising lending rates.

Poised to Enhance Purchasing Power. Prime Minister announced a salary hike of circa 13% for civil servants, effective December 1, 2024, which will cost the government RM10bn annually. This increase will benefit around 1.2mn civil servants, 90% of whom are Bumiputeras. The minimum overall income, including allowances, will rise from RM1,765 to RM2,000 under new guidelines. This government initiative is expected to stimulate economic activity and by extension, boost the property market.

The Ripple Effects of Data Centers and Infrastructure. The Development Expenditure in Budget 2024, which includes major projects like the Sedenak-Simpang Renggam PLUS highway expansion, the resumption of LRT3 stations, and the Penang LRT Mutiara Line construction, is set to significantly impact Malaysia's residential property market. These projects are expected to spur mixed-use developments, increase property values, and boost demand for residential real estate. Additionally, potential announcements on Kuala Lumpur-Singapore high-speed rail could further enhance market sentiment and activity. The emergence of Malaysia as a data center powerhouse significantly impacts the property market. Property market players are likely to shift their investment strategies towards acquiring and developing properties suitable for data centers, such as large industrial plots with reliable power and cooling systems.

Maintain Overweight. Property market is set to remain resilient, driven by affordable housing incentives, increased disposable income, and ongoing infrastructure projects. We favour developers with strong sales history, reputable brands, substantial land holdings in desirable locations, and minimal holding costs. We maintain a BUY call on Mahsing (TP: RM2.07), Matrix (TP: RM1.99), Lagenda (TP: RM1.95) and Simeprop (TP: RM1.21). Simeprop (Buy; TP: RM1.21) is our Top Pick.

Source: BIMB Securities Research - 18 Jul 2024