The property sector is expected to regain momentum in the second half of 2026 as construction cost concerns ease, property sales recover from a seasonally weak first quarter and multiple growth catalysts continue to support developers, according to Hong Leong Investment Bank (HLIB) Research.
The research house maintained its “Overweight” rating on the sector, citing resilient underlying demand, improving tourism, expanding industrial investments and stronger commercial property prospects.
HLIB said developers with diversified exposure across residential, industrial and commercial segments, coupled with sizeable landbanks, are best positioned to benefit from the broadening property upcycle.
Property Stocks Outperformed Broader Market
The KL Property Index (KLPRP) gained 4.5% during the first half of 2026, significantly outperforming the FBM KLCI, which declined 1% over the same period.
The sector’s strongest performers included MKH Bhd, GuocoLand (Malaysia) Bhd, Sime Darby Property Bhd, SP Setia Bhd, OSK Holdings Bhd and IGB Bhd.
HLIB noted that the sharp gains in MKH and GuocoLand were largely driven by privatisation exercises, while several other stocks benefited from improving investor sentiment earlier in the year.
At its peak in May, the KLPRP Index had risen almost 19% year-to-date before retracing, largely due to the sharp correction in Tanco Holdings Bhd after its share price ran ahead of fundamentals.
Despite the index’s overall outperformance, HLIB said the recovery has not been broad-based, with many developers recording relatively muted share price performance.
War Concerns Weighed on Sentiment
The research house attributed weaker sector sentiment in the first half to geopolitical tensions arising from the US-Iran conflict, which sparked concerns over rising construction costs and higher living expenses.
Diesel prices in Peninsular Malaysia surged by more than 120% between February and April before easing substantially following the de-escalation of the conflict.
However, HLIB believes the impact on developers has been limited.
Diesel costs mainly affect projects during earthworks, while most construction contracts are awarded on fixed-price terms, allowing developers to lock in costs. Many developers also delayed awarding new contracts until fuel prices stabilised.
Furthermore, government subsidies for RON95 fuel have helped shield consumers from broader inflationary pressures, reducing the risk of weaker housing demand.
Sales Rebounded in Second Quarter
HLIB said the disappointing property sales recorded by developers during the first quarter were largely temporary rather than indicative of structural weakness.
Sales were affected by fewer working days during the Chinese New Year and Hari Raya festive periods, while the rollout of Malaysia’s electronic Sale and Purchase Agreement (e-SPA) system also slowed transaction conversions during its initial implementation.
Checks with developers indicate that sales momentum improved significantly during the second quarter.
The research house believes this confirms that first-quarter weakness reflected seasonal factors and administrative adjustments rather than deteriorating market fundamentals.
With geopolitical risks easing and sales recovering, developers are entering the second half of the year on a stronger footing.
Residential Outlook Varies by Region
HLIB expects the Klang Valley’s high-end residential market to remain supported by foreign investors and Malaysia My Second Home (MM2H) participants.
Demand in the mid-market segment, particularly homes priced between RM500,000 and RM1 million, is expected to become increasingly location-driven as supply has expanded over recent years.
Transit-oriented developments and projects located within mature townships with established amenities are expected to remain the most resilient.
In Penang, the resurgence of the semiconductor industry, fuelled by accelerating artificial intelligence-related demand, is expected to strengthen demand for mid-to-high-end housing.
Meanwhile, affordable housing continues to experience supply shortages, supporting developers focused on this segment.
Johor’s residential market is expected to benefit from stronger economic activity driven by the Johor-Singapore Special Economic Zone (JS-SEZ), although HLIB cautioned that projects located close to the Rapid Transit System (RTS) corridor may face oversupply risks as numerous developments are scheduled for completion between 2029 and 2030.
Industrial Property Remains Bright Spot
Industrial property continues to be one of the sector’s strongest growth drivers.
HLIB identified Selangor, Negeri Sembilan, Penang, Kedah and Johor as Malaysia’s key industrial hotspots.
Johor remains particularly attractive due to sustained investment interest arising from the JS-SEZ initiative, while Negeri Sembilan’s Malaysia Vision Valley (MVV) 2.0 is emerging as a cost-effective alternative for manufacturers seeking lower land costs outside Selangor.
Malaysia approved RM92.8 billion worth of investments during the first quarter of 2026, highlighting continued investor confidence despite global uncertainties.
The ongoing expansion of data centre investments is also creating new opportunities for developers through land sales and long-term leasing arrangements.
Commercial Recovery Strengthening
The easing of geopolitical tensions is expected to revive Malaysia’s tourism industry after Visit Malaysia Year 2026 was disrupted during the first half.
HLIB believes improving tourist arrivals will support both retail and hospitality assets.
The research house also expects the Klang Valley office market to continue recovering as stronger domestic investment, improving political stability and rising occupancy levels gradually absorb existing office supply.
Developers with substantial recurring income from investment properties are expected to benefit from improving rental performance while enjoying greater earnings stability.
Landbanks Becoming Strategic Assets
HLIB said developers with sizeable landbanks are increasingly using their property holdings as strategic assets rather than simply future development sites.
Sime Darby Property’s recent establishment of its New Economic Venture Fund, where land was injected into the fund in exchange for recurring lease income from data centres, illustrates how land can be monetised without outright disposal.
Similarly, UEM Sunrise has been able to unlock value from its prime Kuala Lumpur land holdings as demand for high-end developments improves.
The research house believes developers with large landbanks carried at relatively low book values stand to benefit most from the current property cycle.
HLIB’s preferred property stocks remain:
- SkyWorld Development Bhd (Target Price: RM0.90), supported by record unbilled sales, project pipeline replenishment and its adoption of Prefabricated Prefinished Volumetric Construction (PPVC) technology.
- UEM Sunrise Bhd (Target Price: RM0.92), driven by improving management execution and its sizeable Johor landbank positioned to benefit from the JS-SEZ.
- OSK Holdings Bhd (Target Price: RM2.85), underpinned by improving property operations, cable manufacturing recovery and continued growth in private credit.
- Sunway Bhd (Target Price: RM6.50), supported by diversified earnings from property development, construction, healthcare and investment properties, alongside continued opportunities arising from Malaysia’s expanding data centre industry.
HLIB concluded that developers with diversified regional exposure, strong execution capabilities and sizeable strategic landbanks remain best positioned to capture opportunities across Malaysia’s evolving property landscape.
