Malaysia Property - Residential Overhang Rose by 9.1% in 2008

Transaction volume and value in 2008 - The Ministry of Finance today launched its Property Market Report 2008. Transaction volume in 2008 grew by 9.9% YoY to 340,240 transactions, while transaction value rose by 14.5% to RM88.34bn. In terms of transaction value, development land reported the highest growth of 36%, followed by agriculture at 23.2% and residential at 13.2%.

Residential still the key segment - The residential segment accounted for 63.7% of total volume and 46.8% of the value of transactions. The commercial segment contributed 9.3% of total volume but 18.8% of transaction value. Development land accounted for 4.3% of total volume but 15.9% of transaction value.

Residential transaction by price range - By price range, houses priced RM250,000 and below accounted for 82.6% (178,976 transactions) of the total market volume. However, we are seeing continued interest in houses priced beyond the RM500,000 mark. Within the RM500,001-RM1m mark, transaction volume grew by 10%. For homes priced above RM1m, transaction volume grew by 33.3%.

Poorer take-up - The number of newly launched housing units declined by 7.3% YoY to 48,830 units in 2008. The national average take-up fell to 44.5% in 2008 from 45.1% in 2007.

Residential overhang worsened - Residential property overhang in Malaysia increased to 26,029 units in 2008 from 23,866 units in 2007 (+9.1% YoY). Correspondingly, the overhang value grew by 17.3% to RM4.48bn. By price range, 58.2% (15,138 units) of the overhang units were priced below RM150,000. By type, terraced units accounted for 38.6% (10,056 units) of the overhang.

Highest overhang in Johor and Selangor - States with the highest overhang remain Johor (7,001 units) and Selangor (4,585 units), which accounted for 26.9% and 17.6% of national overhang respectively. Highest YoY increase came from Kuala Lumpur (+66.3% to 2,532 units), followed by Selangor (+13.1%).

Negative on developers - Although sales could improve given the aggressive promotions and incentives currently being offered by developers but this would come at the expense of margins. We maintain our Sell recommendation on SP Setia and prefer companies with Grade A office exposure in good locations and property investment activities. Our top picks are IGB Corp and KLCC Property.