Foreign investment push
real estate sector to be prime beneficiary
THE local property market is on track to benefit from steady streams of foreign investments into the country, as rising investor sentiment and business confidence levels will have a positive impact on the real estate segment.
Last month, Prime Minister Datuk Seri Anwar Ibrahim revealed that Malaysia had successfully attracted potential foreign investments amounting to Rm76.1bil as of March this year.
A property analyst says the level of investments Malaysia has attracted so far will certainly have positive effects on the local property market.
“The level of potential foreign investments into the country as at the first quarter of 2024 is indeed very encouraging.
“With Malaysia also climbing up the World Competitiveness Ranking and rising higher on the global investment radar, sectors like the property sector will be prime beneficiaries,” he tells Starbizweek.
Malaysia’ climbed five spots to 27th place in the World Competitiveness Ranking 2023. It also rose two spots to 18th place in the 2023 Global Financial Inclusion Index.
Citing data from the Malaysia Investment Development Authority, UOB Kay Hian (UOBKH) Research notes that investment by the real estate segment surged 111% to Rm61bil in 2023, reflecting higher confidence level in the real estate segment.
It goes on to say that developers with landbank near new infrastructure projects (such as the Johor light rail transit (LRT) and Johor Baru-singapore Rapid Transit System or RTS), as well as government initiatives (like the Special Economic and Financial Zones) stand to gain from increased investment and development activities.
“From our channel checks, the proposed bus rapid transit system tender has been retracted to pave the way for Johor LRT instead.
“We understand that the Johor LRT will have at least three lines with their respective terminal stations to be located at Ikea Tebrau, at the Iskandar Puteri area and at Senai.”
Since the proposed Johor LRT is to be developed on a public-private partnership basis with some costs covered by the consortium, the research house believes there is a high chance it will be approved – since it will use a lower federal government budget.
“We believe the biggest Johor LRT beneficiary will be the IWH Group, as we estimate 10 to 12 LRT stations will overlap with the group’s landbank.”
With most of IWH’S landbank located near the RTS, UOBKH Research believes there will be more upside to their project’s gross development value.
Affin Hwang Investment Bank in a recent report notes that there were several developments in Johor that are driving investor interest in listed companies with property exposure down south.
“Prices of condominiums and serviced apartments, particularly those in the vicinity of the Malaysia-singapore Causeway, are seeing launch prices that are either on par or exceeding those in the central region, including Kuala Lumpur.
“The good work progress (70% completed) for the RTS Link will likely continue to improve buyers’ confidence and the longterm growth prospects.”
Affin Hwang notes that prominent property players such as Sunway Bhd, UEM Sunrise Bhd and Ekovest Bhd have substantial land banks that are strategically positioned in high-growth areas in Johor.
Additionally, the research house says commercial activities (especially food and beverage and entertainment) in Johor continue to show slow momentum, while demand remains strong for industrial and landed residential properties.
“In particular, the potential conversion from leasehold to freehold status for properties in Medini, coupled with comprehensive townships featuring key amenities (such as healthcare, education and retail facilities) aimed at enhancing residents’ lifestyles, by local property developers like Sunway, will continue to attract prospective property buyers.”
Separately, UOBKH Research says that Penang continues to be a popular investment destination, pointing out that the state received the most foreign direct investment (FDI) in 2023.
“Malaysia secured record-high Rm329.5bil (rising 23% year-on-year) in investment, with FDI contributing 57.2% to total approved investments (15% year-onyear) in 2023, a testament to Malaysia remaining an attractive investment destination.
“Penang saw the highest investment level of FDI (Rm61.7bil) in 2023. Foreign investors were mostly concentrated in information and communications, electrical and electronics, mining and transport equipment, as well as chemicals and chemical products.”
UOBKH Research says this was driven by global companies seeking alternatives to China, amid the United States and China tech war.
“With demand for advanced chips rising, Malaysia’s expertise in semiconductor assembly and testing is gaining attention, attracting major players like Intel, which is investing billions in new facilities.”
Separately, RHB Investment Bank says developers with exposure to Penang’s island and mainland, such as Eastern & Oriental Bhd (E&O), should see better demand for properties going forward.
“However, the percentage of exposure is relatively small as many other major developers have bigger presence in the Klang Valley and Iskandar Malaysia.”
The research house says Tambun Indah Land Bhd and E&O are considered key Penang plays, adding however that the latter is “not a pure play.”
“As Tambun Indah is relatively less aggressive in its launches, its outlook for earnings growth is rather mediocre. E&O, on the other hand, has started to enjoy the initial wealth effect, with the recently launched projects seeing an encouraging take-up rate, which should translate to better earnings growth ahead.”
Additionally, UOBKH Research says states such as Kedah and Perak are also gaining traction.
“Due to scarcity of land in Penang, we have seen little FDI coming into Kedah and Perak thanks to their proximity to Penang and low land costs.
“Kedah’s total approved investments came in at Rm28.7bil in 2023 (with FDI at Rm24bil), while Perak received investments totalling Rm8.5bil (FDI: Rm2.1bil).”
UOBKH Research says it is positive on substantial growth of FDI in Penang, Johor, Kedah and Perak, as it promises significant economic benefits for the region.
“We also think that FDI in Greater Klang Valley should remain resilient. We believe developers who own industrial landbanks stand to gain from increased investment and development activities.
“As these investments translate into job opportunities and economic growth, the population in these key regions is likely to increase, as people relocate to the area, driving demand for residential properties.”
The research house adds that this cyclical effect not only boosts the industrial sector, but also stimulates the residential real estate market, creating a positive ripple effect throughout Malaysia’s economy.
“Penang saw the highest investment level of FDI (Rm61.7bil) in 2023. Foreign investors were mostly concentrated in information and communications, electrical and electronics, mining and transport equipment, as well as chemicals and chemical products.” UOB Kay Hian Research