KUALA LUMPUR (Sept 26): MIDF Research has upgraded the property sector to "positive" from "neutral” on improved outlook amid a downtrend in overhang and inventory levels, naming Mah Sing Group Bhd and Matrix Concepts Holdings Bhd as its top picks.

“Residential overhang declined for the sixth consecutive quarter in the second quarter of calendar year 2023 (2QCY23) and was at its lowest level since 2QCY18,” it said in a note on Tuesday.

According to MIDF, the residential overhang of 26,286 units in 2QCY2023 was below the three-year average of 31,000 units. Note that the residential overhang surged to a peak of 36,863 units in 4QCY2021 due to Covid-19 pandemic and has declined since 1QCY2022.

“The decline in residential overhang was due to renewed buying interest on property after the reopening of Malaysia's international borders,” it said.

Meanwhile, it also sees the unchanged overnight policy rate (OPR) as positive for property companies, supporting recovery in demand for properties and buying interest. 

“Recall that the property market was hit by four consecutive OPR hikes in 2022 which dampened buying sentiment on properties. We estimate that every 25 basis point (bps) increase in interest rate increases monthly installment by RM60-RM70 for a house loan of RM500,000.

"Looking ahead, our in-house economist forecasts that OPR will remain unchanged for the rest of this year which is positive to the property sector. We think that the unchanged OPR should bode well for a recovery in demand for property for the rest of 2023 and 2024," it said.

MIDF's top picks are Mah Sing with a "buy" call and a target price (TP) of RM1.01 and Matrix Concepts with a "buy" call and a TP of RM1.86, as it remains sanguine on property developers that focus on the mid-market and affordable segment amid resilient demand for affordable homes. 

"We also like SP Setia Bhd (Buy, TP: RM1.25), Glomac Bhd (Buy, TP: 52 sen) and IOI Properties Group Bhd (Buy, TP: RM1.94) as its valuation remains undemanding," it added.