• AmInvestment said the average unbilled sales for developers under its coverage at 1.4 times are considered “a level comparable to the pre-pandemic period”. 

KUALA LUMPUR (Dec 26): AmInvestment Bank expects an average profit increase of 27% for developers in 2024, spurred by accelerated progress billings due to reduced labour shortages alongside stabilised construction costs, and a pause in interest rate hikes.

“Malaysian property stocks have experienced depressed valuations over the past three years due to negative headwinds.

“However, recent developments, including stabilisation of building material costs and higher availability of foreign labour on construction sites, have alleviated these issues. These support an accelerated pace of construction works for ongoing projects, enhancing developers' ability to recognise progress billings in 2023-2024,” AmInvestment said in a note on Tuesday.

Additionally, the research firm expects increased revenue contributions from recently launched projects following aggressive launches by developers in 2023.

Unbilled sales comparable to pre-pandemic, easing of oversupply issue seen

AmInvestment said the average unbilled sales for developers under its coverage at 1.4 times are considered “a level comparable to the pre-pandemic period”. 

Notably, it said developers with higher unbilled sales, including Sunway Bhd, UEM Sunrise Bhd, Paramount Corp Bhd and S P Setia Bhd, are poised to benefit the most from the acceleration of site progress works. 

The research house also sees gradual easing of oversupply conditions in the Malaysian property market and an improvement in investor sentiments. 

“Owing to developers' proactive strategies on inventory monetisation, the volume of unsold properties has been on a declining trend over the past three years. The diminishing inventory levels have helped improve cash flows, enabling developers to accelerate new property launches as evidenced,” it said.

Meanwhile, it said its prediction of a 3% overnight policy rate for 2023 had materialised, signalling a possible end to Malaysia's rate hike cycle, which could stimulate more positive buying sentiments in the property market.

'Affordable housing trend to continue'

AmInvestment said the disparity between supply and demand for properties below RM500,000 each was somewhat reflected in decelerated growth in the Malaysian house price index following the earlier property boom in 2008-2013.

“The challenge is exacerbated by lower household savings and difficulty in securing high-margin financing to purchase high-end housing. With interest rates normalised, potential buyers will be more discerning in purchasing decisions." 

Property investors with three or more housing loans are limited to a 70% loan-to-value ratio, which, along with other factors, is expected to moderate house price growth and cap high-end residential property prices, while better growth in this sector depends on factors like higher income levels and high-value job opportunities under the New Industrial Master Plan 2030, according to AmInvestment.

Additionally, on Jan 11, 2024, a memorandum of understanding is expected to be signed by Malaysia and Singapore to establish the Johor-Singapore special economic zone aimed at boosting industries, including renewable energy, providing increased job opportunities, and benefiting developers like UEM Sunrise and Sunway with holdings in Iskandar Puteri

The research firm also noted that the revival of major infrastructure projects like the Kuala Lumpur-Singapore high-speed rail project and the Bayan Lepas Light Rail Transit would result in heightened connectivity, attracting more residents and developers to launch transit-oriented projects, complemented by a potential surge in foreign buyers due to the loosening of the Malaysia My Second Home programme.

Top picks as property sector valuation turns attractive

AmInvestment’s top picks for large-cap property stocks are Sunway, with a fair value of RM2.40, and IOI Properties Group Bhd at RM2.05. 

For mid-cap stocks, Mah Sing Group Bhd appears promising, due to its strong position in affordable housing developments at strategic locations, and its nimble business model. 

The property sector valuation, with the property index trading at an attractive price-to-book value ratio of 0.5 times, reflects improving investor sentiments after a period of depressed valuations, the research house added.

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