Lower rates, Iskandar 2.0, TODs to spur property rebound, says UOB Kay Hian

New Straits Times

19 hours ago

KUALA LUMPUR: Falling interest rates, steady mass-market housing demand and renewed investor interest in Iskandar 2.0 and key transit-oriented developments (TODs) are set to drive Malaysia's property market recovery in the second half of 2025 (2H25).
In a recent note, UOB Kay Hian outlined three key drivers supporting its positive sector outlook. The drivers are the Iskandar 2.0 theme – buoyed by foreign direct investment (FDI) into industrial assets and fresh residential demand near the Rapid Transit System (RTS) Link; resilient mass-market housing demand, bolstered by the recent Overnight Policy Rate (OPR) cut and structural tailwinds such as minimum wage hikes; and a gradual recovery in investment appetite for TODs, aided by improved affordability and an updated Malaysia My Second Home (MM2H) programme.
Reflecting the more accommodative rate environment, the broking has trimmed its sector RNAV discount by 3–5 per cent, raising its target prices for covered developers by 2–10 per cent. It maintains an OVERWEIGHT stance on the sector, with Sunway Bhd, Eco World Development Group Bhd, and Mah Sing Group Bhd as top picks.
UOB Kay Hian noted that Bank Negara Malaysia's recent 25 basis point OPR cut should lower borrowing costs for developers and stimulate property demand, particularly among first-time buyers and upgraders. It estimates the lower rates could lift 2026 earnings by over 2 per cent for SP Setia, around 1 per cent for Sunway, and about 0.5 per cent for Eco World, based on their floating-rate debt exposure.
For homebuyers, reduced mortgage rates could lower monthly repayments by about 3.4 per cent for a typical RM500,000 loan over 35 years.
The research house expects Iskandar Malaysia to benefit from multiple upcoming catalysts, including the final plan for the elevated automatic rapid transit (e-ART) system, the launch of the Gemas-Johor Bahru electric train service (ETS) in August, and the anticipated Johor-Singapore Special Economic Zone (JS-SEZ) blueprint by year-end.
"We expect the spotlight to return to Iskandar 2.0 after market recalibration. We are cautiously optimistic on data centre land demand following a reallocation of resources by global cloud players that has led to several stalled DC land deals in the first half of 2025 (1H25)," it said.
Examples of these include SP Setia's 307-acre Tanjung Kupang land, UEM Sunrise Bhd's MOU with Logos Infrastructure Holdco (74 acres), IOI Properties Group's Kulai and Banting sites (180 acres), and Mah Sing's tie-up with Bridge Data Centre in SouthVille City. Of these, only Mah Sing has reported healthy date centre-related enquiries, likely driven by hyperscalers due to its infra-ready status.
The sector's 12-month forward P/B ratio has risen to 0.85 times, up from 0.8 times in June but still below January's recent high of 1.0 times.
Johor launch pipeline picks up pace
Developers are ramping up launches near the RTS station in Bukit Chagar to capture cross-border commuter demand. Sunway will unveil its SOHO units at Sunway Majestic at RM800 psf in July, while Mah Sing plans to launch its premium serviced apartments, M Grand Minori, in August. Other projects in the pipeline include Eco Botanic 3 by Eco World (1Q26) and UEM Sunrise's Estuari Greens and Estuari ParkHomes (4Q25).
UOB Kay Hian expects the uptick in launches in 2H25 to be well absorbed by resilient, less speculative demand, supported by tangible infrastructure progress and robust cross-border connectivity under the JS-SEZ framework.
Affordable housing should remain resilient, supported by rising first-time buyer numbers and higher minimum wages. Developers such as Mah Sing (52 per cent of projects below RM500,000; 37 per cent in the RM500,000–700,000 range), Matrix Concepts (60 per cent below RM600,000), Lagenda Properties (majority priced between RM200,000 and RM300,000), and Eco World's "duduk" series are well positioned to meet this demand.
Investor sentiment toward higher-yield residential units is also improving, particularly for well-located TODs. Projects like E&O's The Conlay and SWNK Houze @ BBCC – both offering direct MRT/LRT access – have started to attract fresh foreign interest.
Residential loan applications rose 2.5 per cent month-on-month in May 2025, though they remain flat year-on-year due to a high base in 2024. Non-residential loan applications fell sequentially in May (-5.1 per cent m-o-m; +2.5 per cent y-o-y), but cumulative growth for the first five months of 2025 stood at a healthy 6.7 per cent y-o-y.
The firm said given the elevated base in 2024, it expects limited growth in residential loan applications this year.
"Looking ahead, we expect 2025 loan applications growth to be driven by non-residential segments, supported by ongoing industrial activity and FDI inflows, while residential applications are likely to remain flattish due to a high-base effect," the firm said.
For 2025, UOB Kay Hian forecasts sector earnings to grow 7.4 per cent year-on-year, on the back of a 10.3 per cent revenue increase, excluding companies with differing financial year-ends. Margins are expected to normalise from record land sale gains in 2024, particularly for SP Setia and UEM Sunrise, while Lagenda Properties may see some margin compression as its new townships move into early construction phases.
Malaysia recorded RM89.8 billion in approved investments in 1Q25, with Johor leading at RM30.1 billion – 67 per cent of which came from foreign sources, mainly Singapore, the US, and China.
The research house remains constructive on the sector's 2H25 outlook, supported by lower rates, resilient industrial demand, and ongoing infrastructure progress from Penang to Johor that is expected to further boost TOD opportunities.