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Buoyant outlook
Maintain Overweight. The Malaysian Property Summit 2011 on 18 January reinforced our bullish stance on the sector. We reiterate that the upcoming MRT project is a catalyst for a structural change in the Greater KL / Klang Valley property scene, resulting in a positive re-rating of property/land values. Glomac and Mah Sing offer higher upside to our target prices after strong share price performance by SP Setia, our top pick for 2011. For REITs exposure, we like SunREIT.
Residential – strong positive trend intact. With the proposed MRT project, we believe that the element of connectivity will feature more
significantly in determining values for residential properties in Greater KL. Prime beneficiaries are developers with landbanks near the MRT stations which are choice sites for high density developments: SP Setia (KL Eco City, new Bangsar land; Buy, RM7.15 TP), SunCity (Sunway Velocity; Buy, RM5.10 TP), Mah Sing (Icon Mont Kiara; Buy, RM2.60 TP), YTL Land (Sentul project; Not Rated), Guocoland (Damansara City; Not Rated), and MRCB (KL Sentral and potential Sg Buloh Malaysian Rubber Board land; Not Rated).
Retail – riding on strong consumer spending trends. The short-term outlook is positive on the back of business expansions by both domestic and international retailers, driven by strong consumer spending. Nevertheless, the long-term outlook would rely on the coordination of massive government developments within the KL central business district (CBD). Within the M-REIT sub-sector, we are bullish on the regional malls (Suria KLCC, Sunway Pyramid) for their strategic locations but cautious on the sub-urban malls which are facing stiffer competition. SunREIT (Buy; RM1.15 TP) (owner of Sunway Pyramid) is our pick under this segment.
Industrial – resilient demand, limited supply. Despite the anticipation of slower growth in manufacturing and export-oriented industries, we expect demand on industrial properties to stay resilient. This is supported by promoted industries under the Economic Transformation Programme and limited supply of industrial properties. Axis REIT (Buy; RM2.60 TP) remains as our favourite industrial REIT.
Office – a tough play. The large upcoming supply would likely limit the bargaining power of office owners for rental revisions and would increase occupancy risk. Oversupply risk is further aggravated by massive government developments like Warisan Merdeka by PNB (+2.2m sq.ft. in 2015). We expect the tenant-dominated office market to prevail and remain cautious on pure CBD office players, such as UOA REIT (Not Rated) and Tower REIT (Not Rated).
Highlights from Malaysian Property Summit 2011
Residential
1) Concerns are on the oversupply of luxury condominiums within KL, especially Mont Kiara and CBD. Luxury condominium supply is expected to increase from 55,649 units in 2010 to 67,401 units by 2012 (+21%).
2) Buyers’ interest has switched to smaller and more affordable units. Landed properties will perform better than condominium due to limited supply.
3) An asset bubble is not likely to develop. Prices are expected to stabilise and any increase in property prices will be at a more gradual pace.
4) Property prices at KLCC, U-Thant and Mont Kiara are expected to remain flat over the next one year, whilst prices at Bangsar and Damansara Heights areas would likely trend higher.
(Source: Henry Butcher)
Retail
1) Current supply is 42.3m sq.ft. NLA in 130 centres, equal to 6.2 sq.ft. per capita (vs. Singapore’s 4.5 sq.ft. per capita).
2) Occupancy rates are well over 90% in both city centre and suburbs and over 95% in most leading centres.
3) Prime retail rents range from RM15-80 psf in the suburbs and RM27-107 psf in the city centre.
(Source: CBRE)
Industrial
1) Industrial property overhang is marginal at 729 units (RM403m), vs. 2,578 residential units.
2) There is a limited supply and no new industrial parks developed. Property prices of industrial land in prime industrial parks have shot up in 2010 (+60-100% for industrial land; +8-18% for selected industrial properties).
3) The introduction of promoted industries by MIDA under the ETP could improve demand for industrial properties.
(Source: VPC Alliance)
Office
1) Office supply at KL fringe has been growing at faster pace than KL city since 2005, increasing by 89.5% vs. KL city’s 12.8%. Knight Frank expects KL fringe office supply to double the growth rate of KL city supply over the next 3 years, i.e. KL fringe’s +30% vs. KL City’s +14%.
2) Average rental has contracted by 0.8% from RM5.13 psf (4Q09) to RM5.09 psf in 4Q10, whilst occupancy rate slid from 93.5% to 92%, for the same corresponding period.
3) Total office space is expected to jump from 59m sq.ft. in 2010 to 73m sq.ft. (+24%) by 2013.
(Source: Knight Frank)
Maintain Overweight. The Malaysian Property Summit 2011 on 18 January reinforced our bullish stance on the sector. We reiterate that the upcoming MRT project is a catalyst for a structural change in the Greater KL / Klang Valley property scene, resulting in a positive re-rating of property/land values. Glomac and Mah Sing offer higher upside to our target prices after strong share price performance by SP Setia, our top pick for 2011. For REITs exposure, we like SunREIT.
Residential – strong positive trend intact. With the proposed MRT project, we believe that the element of connectivity will feature more
significantly in determining values for residential properties in Greater KL. Prime beneficiaries are developers with landbanks near the MRT stations which are choice sites for high density developments: SP Setia (KL Eco City, new Bangsar land; Buy, RM7.15 TP), SunCity (Sunway Velocity; Buy, RM5.10 TP), Mah Sing (Icon Mont Kiara; Buy, RM2.60 TP), YTL Land (Sentul project; Not Rated), Guocoland (Damansara City; Not Rated), and MRCB (KL Sentral and potential Sg Buloh Malaysian Rubber Board land; Not Rated).
Retail – riding on strong consumer spending trends. The short-term outlook is positive on the back of business expansions by both domestic and international retailers, driven by strong consumer spending. Nevertheless, the long-term outlook would rely on the coordination of massive government developments within the KL central business district (CBD). Within the M-REIT sub-sector, we are bullish on the regional malls (Suria KLCC, Sunway Pyramid) for their strategic locations but cautious on the sub-urban malls which are facing stiffer competition. SunREIT (Buy; RM1.15 TP) (owner of Sunway Pyramid) is our pick under this segment.
Industrial – resilient demand, limited supply. Despite the anticipation of slower growth in manufacturing and export-oriented industries, we expect demand on industrial properties to stay resilient. This is supported by promoted industries under the Economic Transformation Programme and limited supply of industrial properties. Axis REIT (Buy; RM2.60 TP) remains as our favourite industrial REIT.
Office – a tough play. The large upcoming supply would likely limit the bargaining power of office owners for rental revisions and would increase occupancy risk. Oversupply risk is further aggravated by massive government developments like Warisan Merdeka by PNB (+2.2m sq.ft. in 2015). We expect the tenant-dominated office market to prevail and remain cautious on pure CBD office players, such as UOA REIT (Not Rated) and Tower REIT (Not Rated).
Highlights from Malaysian Property Summit 2011
Residential
1) Concerns are on the oversupply of luxury condominiums within KL, especially Mont Kiara and CBD. Luxury condominium supply is expected to increase from 55,649 units in 2010 to 67,401 units by 2012 (+21%).
2) Buyers’ interest has switched to smaller and more affordable units. Landed properties will perform better than condominium due to limited supply.
3) An asset bubble is not likely to develop. Prices are expected to stabilise and any increase in property prices will be at a more gradual pace.
4) Property prices at KLCC, U-Thant and Mont Kiara are expected to remain flat over the next one year, whilst prices at Bangsar and Damansara Heights areas would likely trend higher.
(Source: Henry Butcher)
Retail
1) Current supply is 42.3m sq.ft. NLA in 130 centres, equal to 6.2 sq.ft. per capita (vs. Singapore’s 4.5 sq.ft. per capita).
2) Occupancy rates are well over 90% in both city centre and suburbs and over 95% in most leading centres.
3) Prime retail rents range from RM15-80 psf in the suburbs and RM27-107 psf in the city centre.
(Source: CBRE)
Industrial
1) Industrial property overhang is marginal at 729 units (RM403m), vs. 2,578 residential units.
2) There is a limited supply and no new industrial parks developed. Property prices of industrial land in prime industrial parks have shot up in 2010 (+60-100% for industrial land; +8-18% for selected industrial properties).
3) The introduction of promoted industries by MIDA under the ETP could improve demand for industrial properties.
(Source: VPC Alliance)
Office
1) Office supply at KL fringe has been growing at faster pace than KL city since 2005, increasing by 89.5% vs. KL city’s 12.8%. Knight Frank expects KL fringe office supply to double the growth rate of KL city supply over the next 3 years, i.e. KL fringe’s +30% vs. KL City’s +14%.
2) Average rental has contracted by 0.8% from RM5.13 psf (4Q09) to RM5.09 psf in 4Q10, whilst occupancy rate slid from 93.5% to 92%, for the same corresponding period.
3) Total office space is expected to jump from 59m sq.ft. in 2010 to 73m sq.ft. (+24%) by 2013.
(Source: Knight Frank)
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