KUALA LUMPUR (July 23): A multi-year property upcycle has been set in motion, driven by the rise in industrial developments, providing developers with a new growth avenue and alleviating pressure on residential developments, said Hong Leong Investment Bank Bhd (HLIB).  

The investment bank, in its research note, said the seed of the current rally was sown in 2018, with the start of the US-China trade war. 

"The trade war and rising geopolitical tensions led global manufacturers to relocate their base in Southeast Asian countries, including Malaysia. These steps were set to manage supply chain risks.

"Malaysia, as a relatively neutral nation geopolitically, is benefitting from this trend, as seen in the rise in foreign direct investments (FDIs) since 2021," it said. 

HLIB noted that the sector’s long-term uptrend is also driven by economic development decentralisation and the rise of second-tier cities, as well as rising land value.

For several decades, it said Malaysia’s economic development was primarily focused in the Klang Valley but recently, industrialisation and investments have spread to Johor, Penang, Sarawak, and Kedah.

Penang has emerged as a key electric and electronic hub and a rising second-tier city, while Kedah benefits from a spillover demand from Penang and significant investments from multinational corporations like Infineon and Intel.

Meanwhile, Sarawak is focusing on renewable energy and Johor has seen a renewed interest due to the construction of infrastructure projects like the Johor Bahru-Singapore Rapid Transit System and Johor-Singapore Special Economic Zone.

"This shift helps alleviate building pressure in the Klang Valley, while providing new opportunities across the country for property developers," it said. 

As such, HLIB said industrialisation and rising economic activities are boosting land values in these states.

Rising power consumption, driven by the data centre boom and a rapidly developing economy, coupled with Malaysia’s energy transition goals, are driving solar farm developments and this has enhanced land value. 

The investment bank has maintained an "overweight" call on the property sector, with its top picks being IOI Properties Group Bhd, with a target price (TP) of RM3.30; OSK Holdings Bhd (TP: RM2.37), Sime Darby Property Bhd (TP: RM2.05), and Sunway Bhd (TP: RM4.51).

https://www.theedgemarkets.com/node/720026