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Malaysia Real Estate Report Q3 2012

Since our last update, reports on Malaysias real estate sector remain stable, suggesting the country is performing well compared to its regional peers, and even larger markets like the US. Our latest round of in-country interviews (conducted in December 2011) suggest that the market is not yet saturated, and investment may continue to increase as players look to more stable markets than the US and eurozone. A big driver for growth in construction is the governments Economic Transformation Programme (ETP), launched in December 2010. The government identified 131 projects with a total investment value of MYR794.5bn (US$215mn). At the end of 2011, 46 projects, with an investment value of MYR95bn (US$31mn), had been confirmed. MYR36.6bn (US$12mn) of this is for investment in the Mass Rapid Transport (MRT) programme and MYR28bn (US$9mn) (30%) is for investment in the oil, gas and energy sector. Investment in tourism includes the development of the MYR600mn (US$196mn) Marina Island Pangkor 2nd International Resort and Entertainment Island, which includes waterfront property development. In April 2012 it was reported that the ETP had exceeded its 2011 target, achieving 23% of its Key Performance Indicators (KPIs).

The recent optimism in the real estate sector seems contrary to our downgrade of GDP growth from 4.2% to 3.2% in 2012, from 4.5% in 2011. Our forecasts remain below-consensus, but we do believe that headwinds are dragging on exports and manufacturing activity seems to have slowed. This subdued growth outlook for 2012 may also cause a loss in optimism for the ETP and wider real estate market.

Key Opportunities In The Real Estate Sector:

- It is hoped that overseas investors will be targeting Malaysia in the coming months. In particular, Johor Bahru has emerged as a hotspot for Singaporean developers, while Kuala Lumpur (comparing favourably with London and New York) is a reliable prospect for investors from the Gulf Cooperation Council (GCC).

- Infrastructure plans formed by the ETP will boost the profile of a number of local companies involved in their development. These are also serving to increase investor perception of Kuala Lumpur and its surrounding area in particular. Key Risks To The Real Estate Sector:

- Moderation of growth in the economy could cause a slowdown in investment, while companies wait for conditions to improve at a better rate.

- A number of Malaysian property developers are looking overseas, following rising domestic land costs that hamper their ability to find new development opportunities.

- A number of sources are warning that Malaysia is set to experience an oversupply in office property in 2012, which could damage rental levels that have hitherto remained fairly buoyant.

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