• OVERWEIGHT, Top Picks: IOI Properties and Matrix Concepts. Although the House Price Index (HPI) did not exhibit any meaningful growth, 2022’s total property transaction volume and value show that these metrics have almost recovered to previous peak levels. Overhang issues may have been amplified, even though numbers have eased. The sector’s valuation, however, remains below -1SD levels – dampened by renewed concerns on political stability and the soft MYR. Sentiment on the sector should gradually improve in 3Q, when the headwinds have blown past.

• 2022 total property transaction volume is just 10% off the recent peak. Based on recently released National Property Information Centre (NAPIC) data, total property transaction volume increased from a low of 311,824 units in 2017 to 389,107 units in 2022 – the latter is just 10% lower than the previous peak of 430,403 units (recorded in 2011). The residential property segment, which typically accounts for over 60% of total transaction volume, also showed similar trend – clocking a figure just 11% lower than the peak in 2012.

• Total property transaction value at an all-time high. Meanwhile, total property transaction value amounted to MYR179bn in 2022, surpassing the previous peak of MYR163bn (in 2014) by 10%. Similarly, the residential property segment exceeded the previous peak by 15%. Although the aggregate property sales in 2022 achieved by the developers under our coverage did not beat the previous high, NAPIC’s data does point to the vibrancy of the property market. The secondary market typically represents 80% of total market transactions.

• Residential overhang units fell 25% YoY. Apart from the transaction data, we highlight that the number of residential overhang units dropped remarkably. The number of unsold units should be able to stay below the 30k mark going forward, as new launches have been declining while many listed developers have been focusing on winding down their unsold inventory over the past 4-5 years, boosted also by the success of the Home Ownership Campaigns held in 2020-2021.

• HPI growth is, however, flat. Despite the encouraging property market momentum, house prices only saw a mild growth of 1-2% YoY in 2022. Concerns over property overhang play a major role in dragging house prices growth, but we think that concerns over political stability, currency strength and economic growth are also major factors affecting property valuations.

• Sentiment to recover in 3Q23. In line with the broader equity market, near- term sentiment on the sector will likely remain volatile, in view of the upcoming state elections as well as the weakening of the MYR. As we expect property sales to remain steady this year – which means decent earnings growth ahead – we believe investor interest will return once the negative headwinds are behind us. We prefer the township developers and investment property owners, with our Top Picks still being IOI Properties and Matrix Concepts.

Source: RHB Research - 12 Jun 2023