While monthly property loan applications and approvals increased in the first four months of 2019, developers may still find it challenging to sell products that could provide them with sustainable margins. According to HLIB Research, property developers are expected to face weak demand for houses priced RM300,000 and above moving into the second half of 2019.

This was despite indicators such as loan approvals showing signs of growth in the near term, which could be further supported by the Home Ownership Campaign and the cut in the overnight policy rate.

The research house observed that the number of overhang residential units have more than tripled to 32,313 units in 2018 from 10,181 units back in 2014.

Of the total, 62% are priced above RM300,000, representing 88% in terms of value.

“Despite the positive indicators, we believe these improvements can be largely attributed by the pent up demand from the ‘wait and see’ approach taken during the 14th general elections period which led to a low base effect in 2017."

“We believe the housing market is currently priced beyond the affordable range of the mass population in Malaysia. Nonetheless, we believe property developers with good branding and a well-differentiated product will continue to entice demand,” it said.

HLIB Research maintained a "neutral" stance on the sector given the absence of near-term catalysts, although it does not rule out a possible mild recovery of interest towards the sector given the trough valuations.

Its top sector pick is Sunway Bhd, with a target price of RM2.18, given its mature investment properties, growing trading and quarry division and potential listing of its healthcare business.

At a target price of RM2.75, MB World Group Bhd is its small-cap pick given its first-mover advantage to capture the spillover effect from the growth in Petronas' RAPID project in Pengerang and Desaru Coast.