Property sector outlook brightens

Improved prospects: People checking out housing projects at a property fair. A shift to more affordable projects is expected to spur demand in Malaysia.

PETALING JAYA: The property sector’s outlook is improving amid the downwards trend in the property overhang and inventory levels of developers, says MIDF Research.

The unchanged overnight policy rate is also positive for property companies, which helps to support recovery in demand, the research house added.

Given the improving outlook for property developers, MIDF Research has narrowed its revised net asset value discount and target prices for property companies under its coverage.

After the adjustment to valuations, the research house’s stance on property companies remained unchanged.

However, it has upgraded the sector to “positive” from “neutral” in line with the improving outlook.

MIDF Research also has “buy’’ calls with revised target prices for Mah Sing Group Bhd at RM1.01, SP Setia Bhd (RM1.25), IOI Properties Group Bhd (RM1.94), Glomac Bhd (52 sen) and Matrix Concepts Holdings Bhd (RM1.85).

Both Mah Sing and Matrix Concepts are its top sector picks.

MIDF Research said it remains sanguine on property developers that focus on mid-market and affordable segments amid resilient demand for affordable homes.

It also likes S P Setia, Glomac and IOI Properties as their valuation remains undemanding.

According to the National Property Information Centre, among the top five states with the highest residential overhang in the second quarter of 2023 (2Q23), Penang and Johor showed a downtrend.

The residential overhang in Selangor and Kuala Lumpur improved marginally while it has worsened in Perak.

The residential overhang in 2Q23 was below the three-year average of 31,000 units.

The decline in residential overhang was due to renewed buying interest for property after the reopening of Malaysia’s international borders, it added.

The overhang in serviced apartments in Malaysia eased to 22,497 units in 2Q23 from 23,267 units in 1Q23.

It said the overhang in serviced apartments spiked to a peak of 24,267 units in 3Q20 from 16,942 units in 1Q20 due to the Covid-19 pandemic.

The flattish figures for the overhang in serviced-apartments in recent quarters were mainly due to the rise in serviced apartments in Kuala Lumpur and Selangor, which mitigated the lower overhang in Johor.

It said the declining residential overhang in Malaysia is in line with the lower inventory levels of property companies, as they had been actively monetising inventories over the past few years.

The inventory monetisation helped to generate cash flows amid a challenging operating environment due to the pandemic.

It said the inventories of Eco World Development Group Bhd fell significantly by 58% in 2Q23 since 2019.

Similarly, Mah Sing, S P Setia and Glomac saw double-digit declines in their inventory.

However, MIDF Research believed the declining inventory levels would improve the financial position of property developers and give better pricing power to them in terms of new launches.