Malaysia: Property market megatrends

By UOB Kayhian

/ EdgeProp Singapore |

March 22, 2024 10:30 AM SGT

Johor’s property market is thriving, driven by new infrastructure projects and government initiatives (Photo: Bloomberg)

Due to record-high investments in Malaysia in recent years, we foresee positive effects on the property sector. With property transactions hitting new highs, supply overhang ebbing, and investments in real estate rising, the property sector is poised to turn the corner.

Johor on sunrise

Johor’s property market is thriving, driven by new infrastructure projects and government initiatives. These include plans for Special Economic and Financial Zones, transportation improvements like the Rapid Transit System and Johor LRT, and foreign investments.

Furthermore, the Johor state government delegation to Shenzhen, China, is expected to bring an influx of investors to the region.

These recent developments bode well for the property market in Johor, evidenced by a declining number of unsold properties and higher average selling prices at new project launches.

The proposed Johor LRT could have a significant impact on the region. We believe the biggest beneficiary of the Johor LRT will be IWH group, which has 4,212 acres (1,705ha) of landbank with a gross development value of at least RM25 billion ($7.1 billion). We estimate 10-12 LRT stations will be overlapping IWH’s land bank. Other developers that we think have near/overlapping land banks to LRT Johor are LBS Bina, Sunway, UEM Sunrise (UEMS) and Eco World.

New projects at higher launch prices

New projects in Johor Bahru (JB) and its suburbs are attracting interest, indicating a promising future for the region’s real estate sector. Based on our channel check, JB projects such as R&F Puteri Cove and Quayside JBCC are looking to launch at new high selling prices of RM1,600 psf onwards (with some projects reaching RM2,100 psf selling price), which will set a new benchmark in JB city if successful.

So far, the highest launched price was RM1,200–RM1,300 psf in JB city, higher than Penang’s E&O Andaman Island (RM1,000-1,100 psf) and Mont Kiara area (RM1,000 psf), and comparable to Oxley Tower, KLCC new launches of more than RM1,600 psf. Thanks to Johor’s proximity to Singapore as well as the development of the Johor-Singapore Rapid Transit System (RTS), we believe projects near RTS may be able to fetch even higher selling prices compared with Klang Valley in the future (as what we observed recently).

Sunway has launched the Sunway Aviana (landed properties) project in Iskandar Puteri with a selling price starting from RM787,000 or RM560 psf (comparable to the Setapak area in Klang Valley), and the project has been fully sold.

M Minori serviced apartments in Taman Seri Austin by Mah Sing also garnered more than an 80% take-up rate with selling prices of RM542 to RM640 psf.

Read also: Opportunities in the KL property market

Penang received the most FDI

In 2023, Malaysia achieved a record-high investment of RM329.5 billion, with 57.2% from foreign direct investment (FDI). Penang led the way, receiving the highest investment, with FDI totalling RM61.7 billion and direct investment (DI) at RM10.2 billion.

Foreign investors were mostly concentrated in information and communications, electrical & electronics, mining, transport equipment, as well as chemicals & chemical products. This shift is driven by global companies seeking alternatives to China amid the US-China tech war. With the rise of demand for advanced chips, Malaysia’s expertise in semiconductor assembly and testing is gaining attention, attracting major players like Intel, which is investing billions in new facilities.

E&O is the largest land owner on Penang island, coupled with Mah Sing and IJM. Meanwhile, other key developers on mainland Penang are SP Setia, Scientex and Paramount.

Perak and Kedah gaining traction

Due to land scarcity in Penang, there has been a noticeable increase in FDI in Kedah and Perak, thanks to their proximity to Penang and lower land costs. Kedah’s total approved investment came in at RM28.7 billion in 2023 (FDI: RM24 billion; DI: RM4.6 billion), while Perak received a total investment of RM8.5 billion (FDI: RM2.1 billion; DI: RM6.4 billion).

Notable investments in Kedah include AT&S from Austria, a leading high-end printed circuit boards and substrates manufacturer for semiconductors. AT&S set up a new campus in Kulim Hi-Tech and will start delivering high-end integrated circuit substrates for AMD’s data centre processors towards the end of this year.

For Perak, key FDI came from China’s Zhejiang Sinopont, which established its first solar plant in Tasek Industrial Park, Ipoh. Moving forward, the newly-established Kerian Industrial Park (announced during Budget 2024) is expected to complement the industrial park in Seberang Perai, Penang, as well as Kulim Hi-Tech Park.

The newly-established Kerian Industrial Park is expected to complement existing industrial parks in Seberang Perai, Penang and Kulim Hi-Tech Park. Developers near Kerian Industrial Park are Eco World, Paramount and Tambun Indah. Key developers in Kedah are Paramount, Lagenda and OSK.

Promising signs

With a record-high total investment for Malaysia over the past two to three years, we anticipate positive spillover effects on the property sector, which we think have not been priced in yet. Promising signs are emerging, especially on the lower overhang numbers and rising property prices.

Negeri Sembilan recorded the highest increase in house prices by 6.5% y-o-y in 2023, followed by Johor (+6.2% y-o-y), Kedah (+4.5% y-o-y) and Perak (+4.3% y-o-y).

Property transactions are hitting record highs, the overhang is decreasing, and there is increased investment in the real estate sector. This suggests that the worst may be behind us and that the property sector should have a narrower discount to RNAV. Although the sector is trading close to its 10-year mean, previous highs were trading at more than +2SD (every +1SD, the upside is about 16%. Hence, we think there could be another 32% more upside).

Loan applications and approvals gaining traction

January mortgage loan applications grew 9% m-o-m and 35% y-o-y, reflecting continued resilient strong demand for housing. Meanwhile, mortgage loan approvals were also strong, with an increase of 14% m-o-m and 23% y-o-y in January.

Overall, we anticipate mortgage loan growth to continue at a similar pace of 7% in 2024 (2023: +0.34% y-o-y for mortgage applications and +7.3% for mortgage loan approvals), aligning with the expected upward trend in GDP growth.

Reduced overhang — lowest since 2019

Malaysia’s property market reached a record-high transaction value of RM196.83 billion in 2023, marking a 9.91% y-o-y increase, while transaction volume remained relatively stable, recording a 2.5% y-o-y increase. The pick-up in property activities was evident in states like Johor, where transaction volume rose by 40% y-o-y and transaction value jumped 51% y-o-y.

In turn, overhang also showed a significant reduction, particularly in the residential sector, which includes serviced apartments and SoHo (small office, home office) units. The total overhang volume dropped 9.8% y-o-y to 46,641 units, with a corresponding 11.1% decline in value to RM34.3 billion. This marks the lowest overhang volume since 2019.

Serviced apartment overhang notably decreased, with a 13.1% drop in units and a 17.7% fall in value y-o-y. Johor (–17% y-o-y), Selangor (–29% y-o-y) and Kuala Lumpur (–20% y-o-y) observed significant reductions in overhang properties units, indicating positive trends in these areas. Malaysian house prices increased 3.2% y-o-y in 2023, with Negeri Sembilan recording the highest increase in house prices by 6.5% y-o-y, followed by Johor (+6.2% y-o-y), Kedah (+4.5% y-o-y) and Perak (+4.3% y-o-y).

Strong FDI flows

In 2024, a continued strong inflow of FDI is expected. In January alone, Malaysia’s Ministry of International Trade and Industry secured investments of RM2.8 billion from Italy and RM2.8 billion from Singapore.

Additionally, this month, major Australian companies have expressed interest in investing a total of RM24.5 billion in Malaysia, including expanding their existing investments. This interest was conveyed to Malaysian Prime Minister Anwar Ibrahim during his meeting with over 20 Australian companies in Melbourne. The Prime Minister also announced that his visit to Germany resulted in potential investment commitments for Malaysia amounting to RM45.4 billion, following productive discussions with representatives from 38 prominent companies.

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