KUALA LUMPUR: The revised minimum wage announced in the 2027 Budget is expected to support household spending could help sustain property demand amid concerns over rising borrowing costs.
RHB Research analyst Loong Kok Wen said that the property sector has come under pressure from rising bond yields, fuelling expectations of higher interest rates and concerns about a potential slowdown in property demand.
"Historically, a gradual increase in interest rates is unlikely to affect the property market significantly (but a steep hike will)," she said in a note.
"We think the goodies announced by the government in the 2027 Budget are timely. Apart from the usual cash handouts, there are a few other initiatives that should help to stimulate consumer sentiment," she said.
These include an increase in the minimum wage from RM1,700 to RM2,000 effective June 2027, higher individual tax relief of RM12,000 from RM9,000, a one-percentage-point reduction in tax rates for selected income brackets and expanded tax relief categories.
The measures are expected to boost disposable income, particularly among middle-income earners, and provide a lift to consumer sentiment.
Loong said the initiatives could also create a "feel-good factor" to offset the potential impact of higher mortgage interest rates should Bank Negara Malaysia raise its benchmark rate.
She described the 2027 Budget as positive for the property sector, noting that its targeted measures align closely with expectations.
Building on previous initiatives, the budget prioritises public housing to expand home ownership, particularly among the B40 and M40 income groups.
One of the flagship projects, Bandar Madani Bukit Jalil, opens registration for Phase 1 on Oct 12. The full development will deliver 17,000 affordable homes across 26.26ha of government land opposite Pavilion Bukit Jalil.
STAMP DUTY RELIEF EXTENDED TO SUPPORT DEMAND
Loong said the four-year extension of stamp duty exemptions for first-time homebuyers was the budget's most impactful measure for the property sector.
The exemption will now run from Jan 1, 2027, to Dec 31, 2030, extending the previous deadline of Dec 31, 2027.
For properties priced up to RM500,000, buyers will receive full stamp duty exemptions on the transfer and loan agreement instruments. For properties priced up to RM750,000, the exemption covers the first RM500,000, with a 50% exemption on the remaining amount.
The lower upfront costs are expected to benefit property developers broadly, she said.
Loong said companies that sell more mid-range or affordable products, including Matrix Concepts Holdings Bhd, Mah Sing Group Bhd and LBS Bina Bhd should benefit the most.
"Bigger players such as Eco World Development Group Bhd (EcoWorld), IOI Properties Bhd (IOIPG), Sunway Bhd, UOA Holdings Bhd, SP Setia Bhd, and UEM Sunrise Bhd will also benefit to a certain extent, as first-time home buyers of more expensive houses will also enjoy some stamp duty savings," she said.
DEVELOPERS STRENGTHEN RECURRING INCOME
Loong said the quality of earnings across the property sector had improved, with several major developers building more resilient businesses through divisions that generate stable or recurring income.
"In our view, the sector should not be penalised purely because of a temporary softening in demand for property, driven by less favourable macroeconomic indicators," she said.
Loong said a few Tier-1 developers have successfully transformed into real estate players by strengthening their "counter-cyclical" business divisions that produce stable and/or recurring income.
"Sunway, for example, boosted its earnings in healthcare and construction substantially by expanding its number of medical centres and securing a slew of big data centre construction jobs. To date, property development only contributes about 20 per cent of the group's total revenue.
"IOIPG and UOA, on the other hand, have accumulated bigger investment property portfolios over the years, either via outright acquisitions or in-house developments," she said.
She said IOIPG's property development division currently accounts for about 50 per cent of its total revenue, compared to over 70 per cent two years ago. Its investment property contribution is expected to increase from FY27 onwards, led by its three Singapore office assets.
Loong said a government-linked property developer has also solidified its recurring income stream with the recent completion of its maiden core & shell data centre facility.
"Correspondingly, the company announced a higher dividend payout policy. EcoWorld will also start to have a stable income stream from its core and shell data centre facility from late 2027 onwards," she said.
SECTOR UNDERVALUED, RECOVERY IN SIGHT
Loong said the real estate sector is trading at a 60 per cent discount to RNAV, compared to the recent high of a 50 per cent discount to RNAV in May this year.
"We toned down valuations for all property stocks earlier, as the market has turned more cautious following the recent Johor and Negeri Sembilan state elections, as well as the volatile geopolitical conditions in the Middle East.
"We think the negatives are largely priced in, and investors should position for a recovery in value – particularly on stocks that are fundamentally strong, with good earnings visibility supported by strong property sales and unbilled sales," Loong said.
RHB's top pick is EcoWorld, which it regards as a leading developer in Iskandar Malaysia with a proven delivery track record.
Among the highlights is an RM1.013 billion land sale to TERA Data Centers involving 222 acres in EBP 7, Negeri Sembilan.
EcoWorld recorded RM4.05 billion in property sales for the first 10 months of FY26, already exceeding its full-year target of RM4 billion. The southern region contributed almost 50 per cent of total sales.
In the near term, management will focus on launching EBP 8 in Kulai, which is expected to be another key sales driver for its industrial development portfolio, Loong said.
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