HLIB noted that the property sector was one of the top performers in 2023 and continues to do well this year. From the post-COVID period through 2022 to its recent peak on July 18, 2024, the Kuala Lumpur Property Index (KLPRP) surged by 93.5 per cent, significantly outperforming the KLCI, which gained 18.2 per cent during the same period.

Despite this growth, the KLPRP's recent peak is still 23.9 per cent below its previous cycle peak recorded on August 18, 2014.

Is the current rally supported by sector fundamentals? Can the KLPRP reach and surpass the previous peak? 

HLIB highlighted that industrial developments are currently more attractive than other segments due to their higher margins and shorter construction periods. 

It noted that seven out of eight developers under its coverage either have industrial exposure or plan to venture into it. 

Diversifying into industrial projects reduces developers' reliance on residential projects, easing pressure in that segment and allowing demand to catch up with supply, it said.

This year, the industrial segment is being further propelled by the data centre (DC) boom, providing more opportunities for property developers to monetise their lands. 

"In the previous segment, we highlighted that industrial development helps to relieve the pressure from residential development. The current strategic and intentional decentralisation effort from the government relieves development pressure from the city state in Klang Valley. 

"The rise of second - tier cities provides alternative centres of economic growth, which should help to distribute population and economic activities more evenly across a country, contributing to more sustainable and inclusive growth. 

"Developers now have more development opportunities in these new nodes of growth. At the same time, the Klang Valley market would have a breather in absorbing the extra residential and commercial supply," it said.

Meanwhile, HLIB observed that decentralisation and the rise of second-tier cities are significant trends. 

Over the past several decades, Malaysia's economic development has been primarily focused in the Klang Valley, leading to overbuilding. Recently, industrialisation and investments have spread to Johor, Penang, Sarawak, and Kedah.

"This decentralisation has led to more evenly distributed foreign investments and economic growth," it said.

Penang has emerged as a key electronics and electrical (E&E) hub and a rising second-tier city. In March 2024, the government announced the Penang LRT project, a RM10 billion initiative spanning 28 km with 22 stations, expected to commence in the fourth quarter of this year and be completed by 2030.

Johor has seen renewed interest due to infrastructure projects like the RTS and the announcement of a special economic zone (SEZ), while Sarawak is focusing on renewable energy. 

Kedah is benefiting from spillover demand from Penang and significant investments from multinational corporations like Infineon and Intel.

HLIB said that this shift helps alleviate building pressure in the Klang Valley while providing new opportunities for property developers across the country. 

"While Johor had been hogging the limelight for much of this property sector rally from 2023–2024, Johor developers are not the only beneficiaries of the sector rally. In fact, we are observing a sector wide rally that benefits most developers with ongoing and active developments," it said.