1. SECTOR UPDATE
29 April 2011
MALAYSIA
CIMB Research Report
OVERWEIGHT Maintained
Property Market Report 2010
Home run for prices and transactions
Terence Wong CFA +60(3) 20849689 - terence.wong@cimb.com
• Bullish outlook for developers. The key points we picked up from the 2010
Property Market Report are 1) transaction values beat expectations and topped
RM100bn for the first time ever, 2) residential prices rose a faster-than-expected
6.7%, the quickest pace since the 1997/8 Asian crisis, and 3) occupancy rates for
commercial properties, particularly office space in the Klang Valley, were still
weighed down by weak demand and rising supply. Overall, the performance in 2010
reinforces our preference for property developers to property investment
companies. We believe that 2011 will be another year of record transactions and
think that house price appreciation could, in fact, accelerate. We maintain our
OVERWEIGHT on the sector, with Mah Sing as our top pick. Key potential re-rating
catalysts for the sector are 1) newsflow on landbanking, 2) strong and record sales
for most developers, and 3) accelerating earnings growth.
• Transaction values hit new record. Property transactions rebounded from 2009’s
slump, rising 11% to 376,583, thanks to real GDP growth of 7.2%. The value
transacted surged 33% to a record RM107.44bn. Of the big-3 property markets in
Malaysia, Penang enjoyed the biggest jump of 43% in transaction value, followed by
36% for the Klang Valley and 30% for Johor. By property type, the biggest increase
in transaction value came from development properties which jumped 54% to
RM11.74bn, followed by commercial properties (+45%) and industrial (+44%).
Surprisingly, the value of residential transactions showed the most modest growth of
21%.
• 6.7% uptick in house prices. Last year, house prices in all states recorded gains,
taking the average gain for the country to a brisk 6.7%, the strongest in the past 13
years which included the mid-1990s property boom. The Klang Valley enjoyed a
strong rebound from the contraction in 2009, with Kuala Lumpur recording the
steepest appreciation of 12.2%. Selangor was in fourth place with a 9% clip while
prices on Penang Island gained a moderate 6.7% after a hot pace of 16.8% in 2009.
Johor remained one of the biggest laggards as its price appreciation was the
second slowest in 2010. Johor has the dubious distinction of being the only property
market where average prices were flat to lower over the past 10 years.
• Mixed commercial performance. Prospects for commercial properties do not look
promising as there appears to be significant new supply coming onstream for all
types of properties in Malaysia. For specific locations, there are pockets of bright
spots including shophouses in KL, retail space in Selangor and Penang, industrial
units in KL, Selangor and Penang as well as hotels in Penang. In these areas, the
future supply to current stock ratio is relatively low. The trouble spots appear to be
shophouses, office space and retail space in Johor where upcoming supply is
massive, as well as hotels in KL and Johor.
Sector comparisons
Target Core 3-yr EPS P/BV ROE Div
Bloomberg Price price Mkt cap P/E (x) CAGR (x) (%) yield (%)
ticker Recom. (Local) (Local) (US$ m) CY2011 CY2012 (%) CY2011 CY2011 CY2011
E&O EAST MK O 1.42 1.63 402 18.9 14.5 11.8 1.0 5.6 2.5
KLCC Property KLCC MK U 3.25 3.03 1,019 10.8 9.5 10.6 0.5 5.1 4.6
Mah Sing MSGB MK O 2.59 3.30 723 12.6 10.1 22.7 2.1 17.5 3.5
SP Setia SPSB MK O 4.18 5.37 2,471 23.3 18.2 19.7 2.3 11.4 3.6
UM Land UML MK O 1.95 2.11 157 9.1 6.5 21.9 0.5 5.7 5.1
Simple average 14.9 11.8 17.4 1.3 9.1 3.9
O = Outperform, N = Neutral, U = Underperform, TB = Trading Buy and TS = Trading Sell
Source: Company, CIMB Research
Please read carefully the important disclosures at the end of this publication.

2. Transactions
The recently released 2010 Property Market Report (PMR) revealed a strong rebound
of the property market from 2009’s slump. Aided by the 7.2% improvement in real
GDP in 2010, the number of property transactions rose 11% to 376,583 while the
value transacted surged 33% to a record RM107.44bn. This is the first time ever that
the RM100bn mark has been breached. Of the big-3 property markets in Malaysia,
Penang enjoyed the biggest jump of 43% in transaction value, followed by 36% for the
Klang Valley and 30% for Johor. By property type, the biggest increase in transaction
value came from development properties which jumped 54% to RM11.74bn, followed
by commercial properties (up 45%) and industrial (up 44%). Surprisingly, the value of
residential transactions showed the most modest growth of 21%.
Figure 2: Property transactions (RM m)
120,000 Residential Commercial
Industrial Agriculture
100,000 Devmt & others
80,000
60,000
40,000
20,000
0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: PMR, CIMB Research
Figure 3: Property transaction values by segment
2009 2010
Devmt & others Devmt & others
Agriculture 9% 11%
10% Agriculture
Industrial 11% Residential
8% 47%
Residential Industrial
53% 9%
Commercial
Commercial
22%
20%
Source: PMR, CIMB Research
Figure 4: Transaction values
(RM m) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Klang Valley 18,184.3 17,790.8 16,444.8 19,894.3 26,667.3 27,158.0 30,353.5 41,606.2 44,997.8 41,915.0 57,018.2
Johor 6,087.7 5,654.7 6,298.8 6,689.1 10,628.8 7,852.5 6,937.1 8,452.8 11,905.8 9,081.3 11,807.2
Penang 3,275.8 3,632.7 3,433.0 3,863.2 5,653.2 5,502.1 5,489.5 6,554.4 7,276.9 6,532.4 9,372.0
Others 11,648.1 11,556.6 12,466.7 12,988.3 17,014.2 16,269.1 18,745.6 20,520.5 24,158.4 23,486.7 29,242.1
Total 39,195.8 38,634.9 38,643.3 43,434.9 59,963.5 56,781.7 61,525.7 77,133.8 88,338.9 81,015.5 107,439.6
Change 13.9% -1.4% 0.0% 12.4% 38.1% -5.3% 8.4% 25.4% 14.5% -8.3% 32.6%
Residential 21,939.3 22,199.2 21,136.7 23,011.2 29,295.8 28,407.3 29,446.9 36,490.6 41,307.4 41,848.4 50,654.2
Commercial 6,439.2 6,426.8 6,443.9 7,327.5 10,950.6 11,631.3 11,520.1 16,350.8 16,615.4 16,389.0 23,840.3
Industrial 5,102.0 4,319.5 3,838.6 3,968.0 5,834.1 5,004.5 6,037.3 7,080.2 7,897.4 6,833.3 9,829.8
Agriculture 3,073.1 2,308.5 3,229.4 3,698.2 5,474.7 4,952.0 6,213.7 6,910.2 8,512.1 8,340.4 11,377.8
Devmt & others 2,642.3 3,381.0 3,994.7 5,430.0 8,408.5 6,786.6 8,307.8 10,302.1 14,006.6 7,604.3 11,737.5
Total 39,195.9 38,634.9 38,643.3 43,434.9 59,963.5 56,781.7 61,525.7 77,133.8 88,338.9 81,015.5 107,439.6
Source: CIMB estimates, PMR
[ 2 ]

3. Residential
The residential property sector in Malaysia performed very well in 2010. House prices
in all states recorded gains, with the overall country average rising a robust 6.7%. This
is the strongest appreciation in 13 years and the quickest annual pace since the mid-
1990s property bull market. The Klang Valley enjoyed a strong rebound from the
contraction in 2009, with Kuala Lumpur enjoying the steepest appreciation of 12.2%.
Selangor was in fourth place at 9% while prices on Penang Island gained a moderate
6.7% after a hot pace of 16.8% in 2009. Johor remained one of the biggest laggards
as its price appreciation was the second slowest in 2010. Johor has the dubious
distinction of being the only property market where average prices were flat to lower
over the past 10 years (see Figure 7).
Figure 5: House price indices
300.0 Malaysia house price index KL house price index
Selangor house price index Klang Valley price index
Johor price index Penang price index
250.0
200.0
150.0
100.0
50.0
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Source: PMR, CIMB Research
Figure 6: 2010 house price appreciation by state
K. Lumpur
Sabah
Kelantan
Selangor
Malacca
Terengga
Saraw ak
Malaysia
Kedah
Perlis
Perak
N.S.
Penang
Johor
Pahang
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%
Source: PMR, CIMB Research
Figure 7: Annual house price change
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 10-yr avg
Sabah 5.6% 3.9% 5.9% 18.0% -2.7% 0.9% 20.8% 13.7% 7.8% 10.6% 8.5%
Terengganu 2.4% 2.1% 4.3% 19.5% 16.1% 6.3% 10.6% -0.5% 8.5% 7.5% 7.7%
Perlis 3.5% 16.1% -0.3% 12.9% 3.6% 2.8% 6.9% 7.0% -2.5% 5.5% 5.5%
Pahang 5.3% 7.3% -1.4% 16.4% 4.7% 5.5% 6.8% 3.7% -0.4% 0.9% 4.9%
K. Lumpur 1.6% 5.5% 0.9% 6.5% 6.5% 5.3% 7.9% 4.4% -2.5% 12.2% 4.8%
Kedah 3.5% 6.4% 6.3% 8.7% 0.0% 1.1% 3.3% 5.5% 5.8% 5.8% 4.6%
Perak 6.0% 6.8% 4.6% 5.1% 1.5% 3.6% 3.9% 6.5% 0.6% 5.1% 4.4%
Sarawak 1.5% 3.5% 4.7% 1.2% 6.9% 4.1% 9.0% 5.0% 0.8% 6.9% 4.4%
Penang 2.9% -0.3% 12.6% 3.0% 3.9% 1.9% 4.7% 6.1% 4.0% 3.5% 4.2%
Kelantan 1.1% 15.0% -3.0% 0.5% -4.6% 5.1% 6.4% 3.8% 6.8% 9.8% 4.1%
Malacca 7.8% -0.4% 6.6% -1.2% 4.9% -2.3% 2.5% 4.5% 6.3% 7.6% 3.6%
Malaysia 1.1% 2.5% 4.0% 4.8% 2.4% 1.9% 5.3% 4.7% 1.5% 6.7% 3.5%
Selangor 3.5% 2.1% 2.8% 5.2% 0.7% 3.2% 3.2% 4.6% -0.9% 9.0% 3.4%
N. Sembilan 4.2% 4.7% 2.3% 1.7% 3.4% 0.9% 5.1% 3.8% 0.5% 3.8% 3.1%
Johor -12.3% -4.1% 2.1% 1.9% -0.2% 0.7% 3.1% -0.1% 5.5% 2.7% -0.1%
Source: CIMB estimates, PMR
[ 3 ]

4. Zeroing in on the Klang Valley which is the pre-eminent property market in Malaysia
with a population of close to 7m or nearly a quarter of Malaysia’s population, we were
surprised at the pace of appreciation in 2010. The star performer was bungalows in
Kuala Lumpur, which saw a 19% bounce in prices, followed closely by semi-Ds at
16.7%. This went against the impression we had that 2010 was the year for terraced
houses as prices in various areas in KL and Petaling Jaya supposedly surged 20-
30%. The reality, however, was modest price rises of 8.3% for terraced houses in KL
and 10.5% in Selangor. Also surprising was the relatively strong price increase of
9.7% for high rises in KL and 7% in Selangor. This is the fastest pace in KL since
1995 and the quickest in Selangor since 2003. Over the past two decades, high-rise
properties in KL and Selangor have suffered the lowest appreciation and the strong
gains in 2010 lend credence to the contention by some quarters that a property bubble
is forming.
Figure 8: Price index for various residential types in Klang Valley
210.0 KL terrace KL high-rise
KL bungalow KL semi-D
S'gor terrace S'gor high-rise
190.0 S'gor bungalow S'gor semi-D
170.0
150.0
130.0
110.0
90.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: PMR, CIMB Research
Figure 9: Annual house price change in Klang Valley
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 10-yr avg
KL terrace 4.8% 5.0% 4.6% 9.4% 17.7% 22.7% 3.0% -7.0% -3.7% 20.0% 7.7%
KL high-rise 12.5% -6.6% -10.8% 9.4% 13.2% -7.6% -5.9% -7.2% 1.2% 8.0% 0.6%
KL bungalow 22.8% 18.3% 5.9% 34.2% 60.0% 13.8% 13.7% -32.1% -10.8% 37.8% 16.4%
KL semi-D 6.4% 5.5% 4.5% 11.6% 13.2% 11.8% 11.6% -10.2% -27.2% 41.8% 6.9%
KL all 17.8% 1.3% 0.6% 10.7% 28.8% 12.3% 1.6% -9.5% -4.1% 13.3% 7.3%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 10-yr avg
KL terrace -0.7% 12.5% 1.0% 3.9% 5.0% 4.7% 7.1% 7.5% -4.5% 8.3% 4.5%
KL high-rise -5.1% 3.7% 2.1% 5.4% 1.9% 0.0% 3.0% 1.8% 6.4% 9.7% 2.9%
KL bungalow 11.1% -4.5% -1.5% 8.8% 13.9% 14.1% 8.1% 5.1% -6.1% 19.0% 6.8%
KL semi-D 4.4% 4.0% 4.1% 15.6% 5.6% -3.8% 20.8% -5.5% 1.8% 16.7% 6.4%
KL all 1.6% 5.5% 0.9% 6.5% 6.5% 5.3% 7.9% 4.4% -2.5% 12.2% 4.8%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 10-yr avg
S'gor terrace 6.5% 4.5% 4.0% 9.0% 11.3% 10.8% 13.8% -5.8% -10.0% 18.7% 6.3%
S'gor high-rise 6.2% 5.2% 1.1% 7.4% 11.0% 7.1% 0.3% -5.9% -14.5% 17.9% 3.6%
S'gor bungalow 10.0% 5.0% 2.8% 17.2% 17.8% 13.7% 9.2% -20.1% -22.0% 16.4% 5.0%
S'gor semi-D 6.4% 5.5% 4.5% 11.6% 13.2% 11.8% 11.6% -10.2% -27.2% 41.8% 6.9%
S'gor all 7.2% 4.7% 3.8% 9.2% 14.5% 8.4% 10.3% -6.4% -4.8% 14.7% 6.1%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 10-yr avg
S'gor terrace 4.0% 4.8% 2.3% 3.9% 0.3% 0.9% 2.2% 3.9% -1.0% 10.5% 3.2%
S'gor high-rise 0.3% -4.7% 8.2% 1.5% -2.1% -2.0% 2.1% -4.4% 4.0% 7.0% 1.0%
S'gor bungalow 3.5% -7.4% 7.0% -1.8% 3.7% -0.4% 13.3% 23.1% -9.0% 8.0% 4.0%
S'gor semi-D 2.8% -8.9% 1.4% 25.2% 4.7% -3.1% 7.6% 6.3% 1.8% 0.1% 3.8%
S'gor all 3.5% 2.1% 2.8% 5.2% 0.7% 0.3% 3.2% 4.6% -0.9% 9.0% 3.1%
Source: CIMB estimates, PMR
[ 4 ]

5. However, we continue to hold the view that there is a good explanation for the strong
property prices and that one year’s strong appreciation does not make for a general
bubble. 2009 was a weak year during which prices of terraced houses and bungalows
in both KL and Selangor fell on average. The rebound in 2010 should, therefore, not
be a big surprise. Strong gains were also made after the Asian financial crisis and also
the years immediately after a year of flat or lower prices. As for prices of high-rise
buildings in KL and Selangor, the 20-year CAGR is a miserable 1.5% for KL and 2%
for Selangor, way behind the 5.4% CAGR for overall KL and 4.4% CAGR for overall
Selangor. 2010’s gain could be the long-overdue catch-up for that asset class.
Part of the reason for the strong property price appreciation is the limited new supply.
The supply of completed residential properties in 2010 increased at the slowest pace
since 1997. This was true for the Klang Valley, Johor and Penang. The supply of
newly completed residential properties in Malaysia rose only 2.2% in 2010, a drastic
slowdown from the 3-12% range seen since 2001. New supply in the Klang Valley in
2010 was only 2.5% and the growth rate was even lower for Johor at 1.7% and
Penang at 2.3%. Within the Klang Valley, Selangor’s supply growth was low at 2.1%
compared to Kuala Lumpur’s 3.6%. The state with the highest growth in supply in
2010 was Sabah at 4.8%.
Figure 10: % change in new residential supply
20.0%
18.0% KL Selangor
Johor Penang
16.0% Malaysia Klang Valley
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: PMR, CIMB Research
In terms of unsold stock, there was a 21% spike in 2010 to nearly 79,000 units (see
Figure 12). This came largely from the smaller property markets as well as Johor,
which saw a 19% increase. KL, Selangor and Penang saw a decline in number of
overhang units, which would explain the higher house price gains in those areas
compared to Johor. While the 65% overhang to needs ratio for properties in KL still
appears high relative to the national average of 55%, we are not concerned as the
overall ratio for the Klang Valley is only 38%. The authorities are trying to increase the
population in the KL city area and the popularity of smaller apartments will draw
people into the city. In terms of the overhang to total stock, KL’s ratio is only 1.5%,
lower than Johor’s 2.4% and also the national average of 1.8%. The overall ratio for
the Klang Valley is only 1.1%, dragged down by Selangor’s low ratio of 0.9%. Only
Penang’s ratio is lower at 0.4%.
Figure 11: Malaysia’s housing supply statistics (units)
Starts Starts Completion Existing stock Under construction Future supply
1998 152,946 121,987 1,797,542 417,343 353,028
1999 142,563 128,351 2,315,059 399,316 452,924
2000 41,924 69,329 2,366,925 377,284 394,304
2001 23,137 112,157 2,761,242 480,517 503,654
2002 135,899 156,042 2,991,738 572,961 504,930
2003 166,143 187,178 3,237,599 584,531 527,386
2004 155,589 165,964 3,467,812 641,771 625,857
2005 152,852 180,600 3,680,462 637,208 636,783
2006 142,594 170,962 3,850,568 608,840 648,174
2007 133,948 181,123 4,063,167 573,716 666,928
2008 107,856 130,309 4,193,150 551,263 673,871
2009 86,743 103,335 4,338,609 538,894 667,936
2010 84,210 95,938 4,433,310 527,166 660,032
Source: Property Market Report, CIMB estimates
[ 5 ]

6. Figure 12: Residential overhang (units)
Klang Valley K. Lumpur Selangor Johor Penang Others Malaysia
2004 28,923 3,604 25,319 17,817 3,550 29,218 79,508
2005 24,939 2,713 22,226 19,735 3,173 32,859 80,706
2006 27,471 7,751 19,720 21,523 1,393 35,104 85,491
2007 20,961 5,931 15,030 18,407 1,164 35,566 76,098
2008 19,630 5,808 13,822 19,015 1,888 35,846 76,379
2009 18,767 6,612 12,155 13,475 2,483 30,681 65,406
2010 18,246 6,327 11,919 16,039 1,401 43,290 78,976
Note: Based on overhang + unsold under construction and not constructed properties
2010 Klang Valley K. Lumpur Selangor Johor Penang Others Malaysia
Overhang (units) 18,246 6,327 11,919 16,039 1,401 43,290 78,976
Population (m) 6.83 1.66 5.18 3.39 1.58 16.51 28.31
Population growth (%)# 2.94 2.20 3.17 2.24 2.11 1.97 2.17
Avg household (no.)* 3.88 3.72 3.93 4.17 3.94 4.54 4.31
Housing needs (units) 51,800 9,788 41,779 18,184 8,447 71,606 142,518
Overhang/needs 35.2% 64.6% 28.5% 88.2% 16.6% 60.5% 55.4%
Total stock 1,696,787 415,860 1,280,927 674,188 348,343 1,713,992 4,433,310
Overhang/total stock 1.1% 1.5% 0.9% 2.4% 0.4% 2.5% 1.8%
# CAGR for 2002-2008
* Based on 2010 census
Source: PMR, Poluation and Housing Census & CIMB estimates
Office space
Overall occupancy rates for office space in the Klang Valley softened last year for the
third year in a row. The drop was mainly due to new supply outstripping demand. New
supply in Kuala Lumpur and Selangor increased from 4.2m sq ft in 2009 to 4.4m sq ft
while demand growth surprisingly softened from 2.5m sq ft to 2.1m sq ft. Overall
occupancy in the Klang Valley fell 1.4% pts to 82.3% in 2010, after falling 0.9% pts to
83.7% in 2009. In line with the drop in occupancy rates, rental rates also came under
pressure and were flattish. Newly completed office buildings in the Golden Triangle
took longer to fill and building owners had to reduce rates to attract tenants. The only
bright spot for office space appears to be the Bangsar belt from KL Sentral to Bangsar
South where rental rates are firm. Occupancy rates in the three major property
markets – Klang Valley, Johor and Penang – are the lowest in the country (see Figure
15).
Figure 13: Klang Valley office space
mil sq ft Demand Supply Occupancy Occupancy
140 120%
120 100%
100
80%
80
60%
60
40%
40
20 20%
0 0%
81 83 85 87 89 91 93 95 97 99 01 03 05 07 09
Source: PMR, CIMB Research, Rahim & Co Research, BNM, Domain Properties, CH Williams Talhar & Wong and JLW Research
[ 6 ]

7. Figure 14: Klang Valley office space occupancy and rental rates
120.0% 7.00
100.0% 6.00
5.00
80.0%
4.00
60.0%
3.00
40.0% Occupancy Rental rates
2.00
20.0% 1.00
0.0% 0.00
81 83 85 87 89 91 93 95 97 99 01 03 05 07 09
Source: PMR, CIMB Research, Rahim & Co Research, BNM, Domain Properties, CH Williams Talhar & Wong and JLW Research
Figure 15: Office occupancy rates by state in 2010
Perlis
Terengganu
Kelantan
Pahang
Perak
Malacca
Kedah
Saraw ak
Ng.
Sabah
KL
Penang
Selangor
Johor
70.0% 75.0% 80.0% 85.0% 90.0% 95.0% 100.0%
Source: PMR, CIMB Research
Retail space
The Klang Valley market for retail space fared slightly better than the office market as
demand nearly matched new supply. As a result, occupancy rates eased only 0.2%
pts to 86.7%. Kuala Lumpur’s occupancy rose 0.3% pts to 84.2% while Selangor’s
dipped 0.1% pts to 89.1%. In terms of supply, Kuala Lumpur’s supply increased 1.4%
while Selangor’s supply growth was a higher 2.3%. Demand, on the other hand,
improved 1.8% in Kuala Lumpur and 2.2% in Selangor. Unlike the office space market
in the Klang Valley, retail space fared better in terms of occupancy rates compared
with most other states. The two worst markets for retail space were Johor and
Penang.
Figure 16: Klang Valley retail space
mil sq ft
Demand Supply Occupancy
70.0 120.0%
60.0 100.0%
50.0
80.0%
40.0
60.0%
30.0
40.0%
20.0
10.0 20.0%
0.0 0.0%
89 91 93 95 97 99 01 03 05 07 09 11 F 13 F
Source: PMR, CIMB Research, Rahim & Co Research
[ 7 ]

8. Figure 17: Retail supply growth by state
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
KL 15.3% 2.1% 3.7% 12.1% 8.6% 4.1% 0.7% 11.7% 0.0% -0.7% 1.0%
Selangor 5.4% -0.8% 20.3% 24.0% 7.0% 5.0% 15.8% 7.3% 19.9% 0.2% 2.5%
Johor 5.6% 3.7% 14.3% 0.8% 3.9% 4.1% 7.8% 14.9% 17.5% 7.3% 4.0%
Penang 15.5% 9.8% 6.7% 0.9% 7.5% 0.0% 12.8% 7.7% 7.2% 6.9% 10.0%
Ng. Sembilan 26.9% 11.1% -6.4% 0.0% 5.6% 0.9% 7.5% -1.1% 3.0% 8.0% 4.4%
Perak 3.5% -2.1% 13.6% 1.1% -3.4% 8.7% 4.3% 7.8% 13.8% 4.8% 0.8%
Malacca 6.0% -0.4% 8.3% 0.0% 0.0% -5.3% 12.0% 13.7% 1.3% 10.3% 27.4%
Kedah -1.2% 0.0% 3.4% 3.1% -8.5% 8.2% 10.2% 6.2% 8.0% 10.8% 0.0%
Pahang 13.2% 0.4% 13.2% 0.0% -0.3% 0.0% 0.9% 1.5% 21.7% 0.7% 0.0%
Terengganu 0.0% 16.4% 0.0% 0.0% 0.0% 0.0% 0.0% 100.4% 28.2% -0.8% 27.5%
Kelantan 0.0% 0.0% 0.0% 0.0% 106.2% 0.0% 20.4% -3.3% 12.3% 23.7% 8.2%
Perlis 3.9% 1.6% 0.4% 0.0% -42.0% -0.1% 0.0% 2.7% 4.7% 0.0% 23.9%
Sabah 9.5% 7.8% 15.0% 0.0% 7.6% 0.3% 13.8% 14.2% 42.4% 0.6% 15.3%
Sarawak -22.5% 18.2% 6.3% 3.8% 1.2% 0.0% 0.0% -1.1% 39.4% -4.9% 6.9%
Malaysia 8.3% 3.4% 9.3% 8.1% 5.5% 3.3% 8.4% 9.1% 12.6% 3.1% 4.9%
Source: CIMB estimates, PMR
Figure 18: Retail occupancy rates by state in 2010
Perlis
Kelantan
Selangor
Perak
KL
Sabah
Ng. Sem.
Pahang
S'w ak
Malacca
Kedah
Terengganu
Johor
Penang
60.0% 65.0% 70.0% 75.0% 80.0% 85.0% 90.0% 95.0% 100.0%
Source: PMR, CIMB Research
Hotels
The average occupancy rate for Klang Valley hotels improved 2.7% pts to 65.9% in
2010, reversing 2009’s 1.8% pt fall. However, it is still far from 2007’s peak of 71.6%.
Occupancies in Kuala Lumpur picked up from 65.9% to 69.2% while in Selangor, it
rebounded from 57.2% to 60.3%. The total supply of rooms in the Klang Valley rose
2.4% to 44,828 while demand grew at a faster clip of 6.7%. The higher occupancy rate
is a pleasant surprise as tourist arrivals in 2010 increased by only 4%, the slowest
since 2003. While new supply under construction for Malaysia is substantial, the
growth in the supply of hotel rooms was only 1.1%, the slowest since 2003.
Figure 19: Klang Valley hotel market
('000 rooms) Occupancy
Supply Demand Occupancy
60.0 100.0%
50.0 80.0%
40.0
60.0%
30.0
40.0%
20.0
10.0 20.0%
0.0 0.0%
89 91 93 95 97 99 01 03 05 07 09 11 F 13 F
Source: PMR, CIMB Research
[ 8 ]

9. Figure 20: Hotel room supply growth by state
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
KL 3.0% -1.7% 4.2% 0.0% 8.9% 1.3% 6.7% 0.0% 1.2% 0.4% 2.1%
Selangor 1.7% 1.9% 11.9% 0.2% 6.1% 0.3% 1.9% 8.7% 1.8% -1.7% 1.4%
Johor 129.4% -3.1% 6.1% -2.2% 0.4% -0.8% 0.0% 10.3% 10.1% 7.6% 2.5%
Penang 4.6% 1.7% 2.6% 1.1% 0.4% 0.4% -1.0% 5.0% -0.3% 8.4% 0.7%
Ng. Sembilan 78.0% 1.1% 3.8% 5.4% 4.8% -4.3% 2.3% 15.3% 7.5% -0.9% -0.5%
Perak 10.1% 0.6% 5.9% 0.0% 1.3% 2.2% 2.6% 8.4% 2.8% 10.4% 0.0%
Malacca 12.1% -0.3% 10.8% 0.0% 3.2% 8.6% 0.2% 8.3% 3.5% 1.8% 2.6%
Kedah 69.4% 1.4% 1.9% 1.8% -0.7% 0.9% 1.8% 4.0% -1.8% 0.6% 0.0%
Pahang 73.6% 15.2% 12.8% 0.7% -4.1% 15.2% 2.5% 0.7% 1.1% -0.5% 0.3%
Terengganu 147.9% 6.6% 3.6% 1.9% 1.5% -0.3% 1.1% 2.8% 2.4% 2.5% 1.3%
Kelantan 79.4% 19.9% -0.4% -1.9% 3.9% 4.8% 0.7% 5.8% 0.0% 5.4% 0.0%
Perlis 64.8% 47.7% 14.7% 0.2% 23.4% 5.8% 2.6% 4.2% 11.5% 0.9% 0.0%
Sabah 59.6% 0.5% 7.9% 0.0% 1.0% -1.0% -1.8% 15.4% 10.2% 4.2% 0.6%
Sarawak 144.8% 4.2% 6.4% 0.5% -0.5% 5.3% 5.7% 2.0% 4.8% 7.5% 0.4%
Malaysia 38.6% 2.6% 6.5% 0.3% 2.2% 3.0% 2.4% 5.1% 3.2% 3.1% 1.1%
Source: CIMB estimates, PMR
Figure 21: Tourist arrivals to Malaysia (mil)
30.0
25.0
20.0
15.0
10.0
5.0
0.0
81
83
85
87
89
91
93
95
97
99
01
03
05
07
09
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
Source: CEIC, CIMB Research
Outlook
Promising residential prospects
We are surprised by the 33% jump in property transaction value in 2010 as we
expected the rebound to be closer to the 10-year average of around 10-15%. This
means that the 2009 contraction due to the global financial crisis was milder than
expected and the subsequent rebound was stronger than expected. Looking at the
performance by sector, we see that the residential property market is healthier than
other subsectors as the growth in transaction value was more modest and sustainable
at 21%. For 2011, anecdotal evidence from leading developers points to another
strong year. SP Setia is targeting sales growth of 30% while Mah Sing is aiming for
growth of 30-60%. Both companies appear on track to meet or exceed their targets.
But for the overall market, we expect transaction value growth to slow down to around
15-20% as historically, growth has never sustained at 30% for more than a year and
the base of comparison is also much larger.
[ 9 ]

10. Figure 22: Change in property transaction value vs. real GDP growth
100.0% Residential Total Real GDP grow th
80.0%
60.0%
40.0%
20.0%
0.0%
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
-20.0%
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
20
20
20
20
20
-40.0%
-60.0%
Source: Property Market Report, MOF, CIMB Research
Figure 23: Growth in transaction values
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Klang Valley 13.0% -2.2% -7.6% 21.0% 34.0% 1.8% 11.8% 37.1% 8.2% -6.9% 36.0%
Johor 7.0% -7.1% 11.4% 6.2% 58.9% -26.1% -11.7% 21.8% 40.8% -23.7% 30.0%
Penang 26.4% 10.9% -5.5% 12.5% 46.3% -2.7% -0.2% 19.4% 11.0% -10.2% 43.5%
Others 15.9% -0.8% 7.9% 4.2% 31.0% -4.4% 15.2% 9.5% 17.7% -2.8% 24.5%
Residential 18.3% 1.2% -4.8% 8.9% 27.3% -3.0% 3.7% 23.9% 13.2% 1.3% 21.0%
Commercial 3.8% -0.2% 0.3% 13.7% 49.4% 6.2% -1.0% 41.9% 1.6% -1.4% 45.5%
Industrial 41.8% -15.3% -11.1% 3.4% 47.0% -14.2% 20.6% 17.3% 11.5% -13.5% 43.9%
Agriculture 0.6% -24.9% 39.9% 14.5% 48.0% -9.5% 25.5% 11.2% 23.2% -2.0% 36.4%
Devmt & others -12.6% 28.0% 18.2% 35.9% 54.9% -19.3% 22.4% 24.0% 36.0% -45.7% 54.4%
Total 13.9% -1.4% 0.0% 12.4% 38.1% -5.3% 8.4% 25.4% 14.5% -8.3% 32.6%
Source: CIMB estimates, PMR
We are also surprised by the strength of the rise in residential prices in 2010 as the
6.7% pace is the strongest since the Asian financial crisis and exceeded our forecast
of 4-5%. Nonetheless, the direction of our forecast was right. The rise in prices is due
to a combination of factors including 1) pent-up demand and constrained supply, 2)
inflationary fears resurfacing due to rising oil prices, 3) renewed confidence due to the
economy’s strong performance, and 4) traction gained from the government’s various
transformation programmes. We believe the proposed RM50bn MRT project in the
Klang Valley, several new highways and the possible high-speed rail project to
Singapore also boosted prices as accessibility in the Klang Valley should improve
significantly.
Figure 24: Key highways among the seven proposed under 10MP
Highways Value
(RM m)
West Coast Expressway (WCE) 5,000-6,000
Guthrie-Damansara Expressway 2,000-3,000
Sungai Juru Expressway 1,000-2,000
Paroi-Senawang-KLIA Expressway 700-1,200
Ampang Elevated Highway 2 2,000-3,000
Source: CIMB Research, 10MP
Although we are projecting real GDP growth to moderate to 5.5% in 2011, overall
house prices should still be strong and match 2010’s performance by rising 5-10%.
The authorities were quoted as saying that they expected prices to appreciate at a
faster rate of 10-20%, which is not impossible as prices surged 18.3% in 1995 and
25.5% in 1991. However, we do not expect that strong a price upsurge across the
country unless the economy expands at a more rapid rate and overall confidence in
the economy scales a new high. Also, we do not believe that there is a property
bubble in Malaysia or the Klang Valley yet as strong gains were made only in 2010
after the global financial crisis. Looking back at the trends during the mid-1990s, we
see that house prices rallied for three years from 1994 (8% in 1994, 18.3% in 1995
and 12.9% in 1997) before the Asian crisis set in. In fact, from 1991 to 1996, house
prices appreciated at a CAGR of 13.4%, double 2010’s 6.7%.
[ 10 ]

11. Figure 25: Residential prices vs. real GDP growth
30.0%
Malaysia house price index
25.0% Klang Valley price index
20.0% Real GDP grow th
15.0%
10.0%
5.0%
0.0%
-5.0%
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
10
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
20
20
20
20
-10.0%
-15.0%
-20.0%
Source: Property Market Report, MOF, CIMB Research
Figure 26: Real GDP growth
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012F
Agriculture (0.2) 2.9 6.0 4.7 2.6 5.2 1.3 4.3 0.4 1.7 4.0 3.5
Mining (1.7) 4.4 6.1 4.1 (0.4) (1.0) 2.0 (2.4) (3.8) 0.2 2.5 2.5
Construction 3.3 2.3 1.8 (0.9) (1.5) (0.3) 7.3 4.2 5.8 5.2 5.6 7.0
Manufacturing (4.3) 4.1 9.2 9.6 5.2 6.7 2.8 1.3 (9.4) 11.4 6.0 5.5
Services 4.1 5.8 4.2 6.4 7.2 7.4 10.2 7.4 2.6 6.8 6.0 6.8
Real GDP 0.5 5.4 5.8 6.8 5.3 5.8 6.5 4.7 (1.7) 7.2 5.5 6.0
Source: BNM, CIMB estimates
Figure 27: Malaysia’s house price changes
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
-5.0%
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
20
20
20
20
20
-10.0%
-15.0%
Source: Property Market Report, CIMB Research
Although the affordability index for residential properties in general slipped slightly in
2010 due to higher interest rates as the OPR was raised 75bp in total, it remains near
its best ever. This is because per capita income rebounded 10% in 2010 after pulling
back 8.4% in 2009. The rise in house prices in Malaysia as well as the major property
markets including the Klang Valley, Johor and Penang continues to lag behind income
growth. The lag widened after the Asian crisis. We believe the lag in house prices
reflects a combination of factors such as the elasticity of supply due to the emergence
of large and aggressive township developers as well as the trend towards high-density
high-rise buildings. The extremely slow appreciation of high-rise residential properties
in KL and Selangor reflects the abundance of relatively cheap land for such
development.
[ 11 ]

12. However, we believe the trend is starting to turn. House price appreciation could be
more pronounced in the coming years due to 1) increasing scarcity of land closer to
the urban centres and 2) the concentration of development in the hands of a handful
of large developers which are not churning out cheap homes. For the Klang Valley,
house buyers are less willing to commute long distances given rising transportation
costs. This partly explains why prices of properties in KL continue to appreciate at the
fastest pace. Also, the property sector is increasingly dominated by a handful of mass
developers such as SP Setia, Mah Sing, Sime Darby and IJM Land, as they have
displaced past big developers such as Land & General and Talam/K Euro which used
to produce large numbers of affordable homes.
Figure 28: Affordability index (mortgage/income) for Malaysian properties
0.4500
0.4000
0.3500
0.3000
0.2500
0.2000
0.1500
0.1000
0.0500
0.0000
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
Source: PMR, CIMB Research
Figure 29: House prices have lagged behind income growth
550.0 Malaysia house price index Klang Valley price index
500.0 Johor price index Penang price index
Per Capita Income Index Consumer Price Index
450.0
400.0
350.0
300.0
250.0
200.0
150.0
100.0
88
90
92
94
96
98
00
02
04
06
08
09
19
19
19
19
19
19
20
20
20
20
20
20
Source: PMR, CIMB Research
Commercial property prospects mixed
Prospects for commercial properties does not look promising as overall, there appears
to be significant new supply coming onstream for all types of properties in Malaysia.
However, a breakdown of future new supply by geographical markets reveals some
bright spots including shophouses in KL, retail space in Selangor and Penang,
industrial units in KL, Selangor and Penang, and hotels in Penang. In these areas, the
future supply to current stock ratio is relatively low. The trouble spots appear to be
shophouses, office space and retail space in Johor where upcoming supply is
massive, as well as hotels in KL and Johor. Interestingly, in Figure 31, the numbers for
residential properties in the Klang Valley for both KL and Selangor look healthy, which
augurs well for the property market as a whole since residential properties make up
the bulk of the sector.
[ 12 ]

13. Figure 30. Occupancy rates in KL/Klang Valley
100.0% Office Retail Hotel
90.0%
80.0%
70.0%
60.0%
50.0%
40.0%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Source: PMR, CIMB estimates
Figure 31. Existing and future supply of properties
Klang Valley Kuala Lumpur Selangor Johor Penang Others Malaysia
Residential (units)
Existing stock 1,696,787 415,860 1,280,927 674,188 348,343 1,713,992 4,433,310
Under construction 161,545 37,194 124,351 70,404 41,580 253,637 527,166
Future supply 323,870 69,935 253,935 216,482 81,830 565,016 1,187,198
Future supply/existing stock 19% 17% 20% 32% 23% 33% 27%
Shop house (units)
Existing stock 98,054 22,692 75,362 67,201 28,127 171,318 364,700
Under construction 14,041 1,733 12,308 8,296 3,437 22,220 47,994
Future supply 22,341 3,068 19,273 22,143 5,988 55,883 106,355
Future supply/existing stock 23% 14% 26% 33% 21% 33% 29%
Office space (mil sq ft)
Existing stock 114.9 73.0 42.0 10.6 11.6 41.2 178.2
Under construction 18.8 10.9 7.9 2.2 0.4 4.9 26.4
Future supply 29.2 17.2 12.0 8.5 0.9 6.8 45.5
Future supply/existing stock 25% 24% 29% 81% 8% 17% 26%
Retail space (mil sq ft)
Existing stock 50.6 23.0 27.6 15.5 15.0 32.9 114.0
Under construction 9.0 6.6 2.4 3.0 1.3 5.3 18.6
Future supply 11.1 11.1 3.4 12.1 2.3 10.9 36.3
Future supply/existing stock 22% 48% 12% 78% 15% 33% 32%
Industrial (units)
Existing stock 39,464 5,130 34,334 13,452 7,679 32,544 93,139
Under construction 2,738 30 2,708 619 238 4,059 7,654
Future supply 4,343 183 4,160 3,123 810 21,667 29,943
Future supply/existing stock 11% 4% 12% 23% 11% 67% 32%
Hotel (rooms)
Existing stock 44,828 31,065 13,763 16,821 13,631 92,005 167,285
Under construction 9,822 6,213 3,609 6,098 654 9,120 25,694
Future supply 21,414 16,891 4,523 7,079 2,473 22,573 53,539
Future supply/existing stock 48% 54% 33% 42% 18% 25% 32%
Note: Future supply = under construction + planned supply
Source: PMR, CIMB estimates
Valuation and recommendation
The key points we picked up from the 2010 Property Market Report are 1) transaction
values beat expectations and exceeded RM100bn for the first time ever, 2) residential
prices rose a faster-than-expected 6.7%, the quickest pace since the 1997/8 Asian
crisis, and 3) occupancy rates for commercial properties, particularly office space in
the Klang Valley, were still weighed down by weak demand and rising supply. Overall,
the performance in 2010 reinforces our preference for property developers to property
investment companies. Developers benefited from the increase in transaction values
and rising house prices in 2010 and will continue to do so in 2011. Property
investment companies will continue to be weighed down by soft rental rates stemming
from relatively high vacancy rates and substantial new supply.
In terms of the outlook for the property sector, we remain bullish on residential
[ 13 ]