KUALA LUMPUR: A solid economic recovery coupled with stronger consumer sentiment augur well for the local property sector, with better outlook for the residential subsegment.

However, the outlook for the commercial subsegment and high-end condominiums is fairly gloomy, said analysts. Among the property players, MAH SING GROUP BHD [] is favoured by analysts due to the quality of its landbank and strong earnings visibility.

Inter-Pacific Research reiterated its outperform call on the sector driven by stronger consumer sentiment on the back of a more solid economic recovery with real gross domestic product (GDP) projected to expand by 5.5% in 2010.

This is reflected by the increase in home prices, up 0.8% year-on-year (y-o-y) in 1Q10 as well as property transactions involving residential units, shops, and shopping complex, office and industrial buildings, up 16.2% y-o-y to 91,979 transactions worth RM25.2 billion or up 49% y-o-y, it said.

"Added potential catalysts will come from the tendering of several government land especially those located in prime areas like Jalan Stonor, Jalan Ampang and Jalan Lidcol. They are expected to be highly sought after considering the high potential returns from the prime land.

"Also, the joint venture between the government and the Employees Providence Fund (EPF) to promote the development of 3,000 acres (1,214ha) of land in Sungai Buloh into a new hub for the Klang Valley should add positive impetus to the sector," it said.

Nonetheless, the research house said it was sceptical about the office market and high-end condominium projects.

"We continue to like Mah Sing, EASTERN & ORIENTAL BHD [] and SUNWAY CITY BHD [] because of quality landbank and pipeline projects as well as viable business strategy. Our target price for Mah Sing is RM2.20, E&O is RM1.26 and SunCity is RM4.70," it said.

For MIDF Research, it maintained a neutral call on the sector as it expects property sales to undergo a minor correction upon Bank Negara Malaysia tightening monetary policy and foreign funds withdrawing should the economy recovery lose its momentum.

Local investors will continue to cushion the downside as property buyers will continue to seize the present buying opportunity, it said.

"We continue to favour counters with exposure to mid-high end residential developments coupled with strong commercial/industrial developments.

"We foresee both property types benefiting from an economic recovery as (i) consumer purchasing power increases, small and medium enterprise (SME) participation increases from business expansion, (iii) residential PROPERTIES [] a favourite hedging asset and riding on the back of GDP growth recovering at 5.1% for 2010," it said.

MIDF Research said its top pick in the sector was Mah Sing Group Bhd with a target price of RM1.94.

"We like Mah Sing for its (i) proven ‘quick turnaround model' (ii) commendable GDV balance with strong earnings visibility (iii) healthy balance sheet with net-cash position, (iv) consistent historical dividend yield (4%-6%) and (v) complete product mix (between residential, commercial and industrial) with the latest inclusion of its high-rise residential range named M-Suites.

"The group's year-to-date sales remain impressive at RM516 million, accounting for almost 50% of its FY10 target of RM1 billion. We remain confident the group is on track to meet its FY10 targets with the future launches," it said.

Meanwhile, ECM Libra Investment Research maintained its overweight recommendation on the property sector. It said despite an uninspiring set of numbers for 2009 as a whole, the property market remained buoyant over the second half of 2009.

"In fact, 4Q09 was a record quarter for both the residential and commercial sub-segments," it said.

The research house said the National Property Information Centre (Napic) released the Property Market Report 2009 which revealed that the Malaysian property market contracted by 8.3% in 2009 to RM81 billion (2008: RM88.3 billion).

"Nonetheless, the property market did better than in 2007 which recorded a transaction value of RM77.1 billion," it said.

ECM Libra said Johor rebounded more strongly in the 2H09 as compared to the Klang Valley and Penang while properties priced above RM500,000 grew at a faster pace.

In the primary residential transactions, turnaround was seen in 2H09, which grew 23.7% y-o-y, it said. Another positive observation was the increase in sales take-up rate to 48% from 44.5% in 2008, the highest in five years, it said.

"Going into 2010, we expect sales momentum to remain strong backed by improving sentiments and low interest rates.

"Furthermore, buyers are expected to be insensitive to interest rate hike as the current level is historically low and interest costs are absorbed by developers, it said.

The research house said the commercial sub-segment was expected to continue facing headwinds going into 2010, adding that office occupancy in KL of 82.2% in 4Q09 (2008: 81.4%) is expected to come under pressure from incoming supply, while shopping complex and hotel occupancy rates have continued to decline.

"We remain bullish on the residential sub-segment of the property sector. However, we see little upside in big-cap property stocks and as such prefer laggard mid-cap property stocks such as Sunway City Bhd and SUNRISE BHD []. Among non-rated property stocks, we like Mah Sing Group Bhd," it said.