PETALING JAYA: Real estate investment trust (REIT) monetisation is emerging as one of the strongest near-term catalysts for the property sector.
Affin Hwang Investment Bank Research said developers with sizeable recurring income assets could unlock value and improve balance sheets through asset injections over the next two years.
This is even as the broader sector remains deeply undervalued.
The research house maintained its “overweight” call on the sector.
It noted that listed property counters are still trading at about a 37% discount to revised net asset value despite improving earnings visibility.
Affin Hwang said S P Setia Bhd and IOI Properties Group Bhd
(IOIPG) are the clearest beneficiaries of this theme.
S P Setia is targeting a REIT listing by the first quarter of 2027, with proposals expected to be submitted by August this year.
The group is looking at injecting about RM2bil worth of investment properties, potentially raising RM800mil in proceeds.
IOIPG, meanwhile, is positioning its retail, office and hospitality assets in Malaysia and Singapore for possible REIT listings between financial year 2027 (FY27) and FY28 as part of a broader capital recycling strategy.
The bank said the monetisation theme comes as sector earnings closed 2025 on a strong note, with core net profit across its property coverage universe rising about 60% year-on-year.
This was driven by stronger profit margins from higher-value product recognition and gains from land sales.
S P Setia and Eastern & Oriental Bhd exceeded expectations due to stronger margins and sizeable land transactions, while most other developers delivered results broadly in line with forecasts.
Beyond the REIT plans, industrial developments remain the property sector’s earnings backbone.
Eco World Development Group Bhd (EcoWorld Malaysia) and Sime Darby Property Bhd (SimeProp) continue to benefit from sustained demand for industrial land.
This is particularly in Johor and the Klang Valley, where demand from logistics operators, electronics manufacturers and hyperscale data centre operators remains firm.
EcoWorld Malaysia, one of Affin Hwang’s top picks, is expected to sustain earnings growth through recognition of hyperscaler land sales.
This includes disposals linked to Microsoft and Pearl Computing.
The research house said the stock remains attractive at 9.5 times FY26 earnings, offering exposure to the Johor-Singapore special economic zone growth story.
SimeProp remained the preferred large-cap exposure.
This is supported by industrial contributions from Elmina, Bandar Bukit Raja and Vision Business Park, as well as recurring income upside from its hyperscale data centre lease.
Affin Hwang believes the company’s expanding investment asset base also gives it scope to explore a REIT strategy over time.
UOA Development Bhd is also among the bank’s top sector picks.
This is backed by its strong balance sheet and improving sales outlook from Aethera Residence, its RTS-linked Johor development that saw about 70% bookings during launch weekend earlier this year.
Sector sales rose 10% to RM21.6bil in 2025, exceeding cumulative targets by 17%, led by EcoWorld Malaysia, S P Setia, SimeProp and Sunway Bhd.
Developers are targeting RM20.5bil in sales this year, supported by RM15.8bil in launches, although Affin Hwang expected the first quarter to be seasonally softer because of festive overlaps and fewer working days.
“FY26 will mark the first full year under the expanded sales and services tax (SST) framework (6% to 8% for non-residential construction and commercial leasing), which developers flagged as a potential margin headwind due to rising tender prices and cost pressures across labour, materials and utilities.
“In addition, sector sentiment could increasingly be influenced by corporate developments.
“This is with market discussions around potential consolidation (SimeProp-S P Setia) and Sunway’s proposed IJM acquisition remaining key watchpoints,” the research outfit added.
