Will the Bursa property companies do well in 2024

[i4value]

The Malaysian property sector had been soft for many years. This slowdown long before Covid-19. A few years back I wrote an article about whether the Bursa property sector will recover by 2024. My idea of recovery is to get back to the 2016/17 performance.

I think the sector is going to do well in 2024. If you look at the housing starts data you can see an uptrend since 2020. It normally takes about 3 to 5 years for property projects to be completed from the start of construction. As such housing starts can be a forward indicator. A continuous uptrend will mean that performance of property companies in the coming years will be better.

The chart below “synchronized” the housing starts with the revenue for the large Bursa property companies (those with equity > RM 1 b) You can see that although the housing starts peaked in 2014 the sector revenue peaked a few years later in 2016/17.



While we have yet to see the data for the housing starts for 2023 or even the large companies revenue for 2023, I am confident that they will be higher than those for 2022. The questions are whether the 2024 revenue will be at the same level as that for 2016/17. And if so, will the stock price respond accordingly.

[RBM]

The Malaysian property sector had been soft for many years. This slowdown long before Covid-19. A few years back I wrote an article about whether the Bursa property sector will recover by 2024. My idea of recovery is to get back to the 2016/17 performance.

I think the sector is going to do well in 2024. If you look at the housing starts data you can see an uptrend since 2020. It normally takes about 3 to 5 years for property projects to be completed from the start of construction. As such housing starts can be a forward indicator. A continuous uptrend will mean that performance of property companies in the coming years will be better.

The chart below “synchronized” the housing starts with the revenue for the large Bursa property companies (those with equity > RM 1 b) You can see that although the housing starts peaked in 2014 the sector revenue peaked a few years later in 2016/17.



While we have yet to see the data for the housing starts for 2023 or even the large companies revenue for 2023, I am confident that they will be higher than those for 2022. The questions are whether the 2024 revenue will be at the same level as that for 2016/17. And if so, will the stock price respond accordingly.

The issue (and it is THE issue) I have with the Malaysian Property sector, from an investment perspective, is the crippling capacity overhang. Simply too many units cannot get sold. My challenge: How can this sector prosper with such a critically important fundamental still very much in negative territory?

Not vested (in any Malaysian Property Company). But vested in a piece of Kuala Lumpur real estate.

[i4value]

That is why is is called a cyclical sector...there are good times and there are bad times. All these are due to the mismatch between supply and demand. This happens to property sectors all over the world. So the trick is to identify those companies with strong financials to withstand the impact of a prolonged downturn and of course to value them based on the performance over the cycle.

[RBM]

That is why is is called a cyclical sector...there are good times and there are bad times. All these are due to the mismatch between supply and demand. This happens to property sectors all over the world. So the trick is to identify those companies with strong financials to withstand the impact of a prolonged downturn and of course to value them based on the performance over the cycle.

I wish you the best of luck with your Malaysian real estate investments and stock-picking within the sector. The ~28,000 overhang units - these are completed units which remain unsold for >9 months after completion with a value exceeding RM 18 Billion - discourages me. And this ~28,000 overhang number excludes unsold units under construction and units completed within the last 9 months. And it also excludes all the empty units which owners cannot sell. The key overhang problem areas are Johor, KL and the Klang Valley, Penang and Selangor. 

Not vested in any Malaysian Real Estate Developer but vested in a piece of Kuala Lumpur Real Estate.

[weijian]

hi RBM,

Malaysian real estate is very localized. There are overhang problems in those areas you mentioned but similarly in them, it can be "underhang" in certain "choice" locations or housing types. These areas you mentioned actually cover a big mass.

IMHO, overhang is never a problem for foreign investors in Msian real estate. If one can avoid overpriced and uncompleted properties (plenty of these in Msia - just look this subset - those small scale Msian developers who listed on SGX), the odds are that you will earn a decent inflation-adjusted return based on favorable financing options like 90% loans/35years tenure. The key issue is the exchange rate risk. As long as you need to repatriate your earnings back to SGD, you probably wouldn't beat 2023 Spore Saving Bonds. One can only be naturally hedged if they don't repatriate those earnings (example, they stay, live and spend them in Msia via MM2H etc)

[i4value]

In the long run it is better to invest in properties than the KLCI. The chart below shows the comparative returns between the KLCI and the Malaysian Housing Price Index