Upbeat outlook for property sector on lower rates

PETALING JAYA: Despite unsold residential units reaching their highest level since 2023, analysts remain optimistic about the property sector, citing resilient demand, lower interest rates and anticipated affordable housing measures in Budget 2026 as key growth drivers.

UOB Kay Hian (UOBKH) Research, citing National Property Information Centre’s data, said property transaction value rose 14% year-on-year (y-o-y) in the second quarter of 2025 (2Q25) to RM56.3bil.

Residential transactions grew 3% y-o-y in value, while the industrial segment jumped 11%. It noted that completed but unsold residential units – or overhang units – climbed 19% y-o-y to 26,911 in 2Q25, but attributed this to a surge in project completions.

MBSB Research, meanwhile, said the figure – up from 23,515 units in 1Q25 – marked the third consecutive quarterly increase and the highest since 2023.

It noted the increase was mainly driven by Kelantan, where unsold condominiums in Kota Baru priced between RM200,000 and RM300,000 added nearly 2,000 units.

Still, MBSB Research highlighted overhang in key states such as Kuala Lumpur and Penang remained stable, while Selangor and Johor reported increases.

To note, the top five states with highest residential overhang in 2Q25 were Kuala Lumpur, Perak, Johor, Penang and Selangor.

On financing, MBSB Research highlighted that total loan applications for property purchases in the first seven months of 2025 rose 1.2% y-o-y to RM374.4bil.

“We think the prospect for loan application is better for the remainder of 2025 mainly due to the overnight policy rate (OPR) cut by 25 basis points on July 9.

“The OPR cut is expected to improve loan affordability of property buyers and support loan application growth,” it said.

Approved loans, however, dipped 1.5% y-o-y to RM161.4bil, though the research house expects approvals to improve in the coming months alongside stronger applications.

MBSB Research said earnings of most property companies were on track in the first half of 2025 (1H25), with IOI Properties Group Bhd the only one that missed due to higher tax expenses.

It said new property sales in 1H25 were generally in line with expectations, with developers keeping their sales targets while eyeing stronger momentum in the second half from upcoming launches.

“Developers such as Mah Sing Group Bhd, Sunway Bhd and Matrix Concepts Holdings Bhd are targeting higher sales in 2026 due to favourable property market conditions,” it said. Looking ahead, both UOBKH Research and MBSB Research expect Budget 2026, to be tabled on Oct 10, to focus on affordable housing.

UOBKH Research expects it to offer “expanding financing means for first-time home buyers”.

MBSB Research added stamp duty exemptions and an extended Home Ownership Campaign could also be on the table, benefitting developers with high exposure to affordable housing like Mah Sing and Matrix Concepts.

It also flagged potential reforms such as build-then-sell and enhanced rent-to-own schemes, which could reshape the market but pose financial challenges for highly geared developers.

MBSB Research noted that under the build-then-sell model, construction costs must be funded upfront, which may increase costs for developers and, in turn, reduce housing supply.

“Consequently, we opine the higher market concentration among developers with stronger balance sheets and lower housing supply may lead to an increase in property selling prices,” it warned.

Overall, MBSB Research maintained a “positive” stance on the property sector, citing stable prospects supported by healthy buying interest.

“Despite the rising residential overhang in Malaysia, we think the residential overhang in key states remain healthy which should keep sentiment on the property market in Malaysia staying positive,” it said, naming Mah Sing, Matrix Concepts and UOA Development Bhd as its top picks.

Meanwhile, UOBKH Research reiterated its “overweight” call, with Sunway, Eco World Development Group Bhd and Mah Sing as its top picks.

It said growth will be driven by falling interest rates, stronger industrial land demand from the Johor-Singapore Special Economic Zone, and infrastructure projects boosting transit-oriented development.