The research house said the sector’s headwinds “remain aplenty” including oversupply, high household debt, elevated interest rates, and weakened consumer sentiment resulting from high inflation and rising living costs.

In a note today, the research house said the market has adequately priced in the immediate to short-term impact of data centre investment and Johor’s economic transformation to the sector.

“Nonetheless, we see a bright spot in the affordable housing segment,” it said.

Bursa Malaysia’s Property Index climbed to a six-year high in June when it touched 1,149.07 points – its highest since hitting 1,093.73 points on Sept 3, 2018. At the mid-day break, the index was up 7.95 points or 0.7% to 1,088.84 points.

The index, which tracks property sector-linked stocks on the local bourse, was up 57.7% over the past one year.

Kenanga maintained its “underweight” rating on the property sector while downgrading its call on several property developers.

“We downgrade our calls for Mah Sing Group Bhd (Target price (TP): RM1.87) to ‘market perform’ from ‘outperform’, and Sime Darby Property Bhd (TP: RM1.08) and UOA Development Bhd (TP: RM1.79) to ‘underperform’ from ‘market perform’ as their valuations have become rich after the recent run-up in their share prices,” it said.

On a year-to-date basis, Sime Darby Property’s shares soared 121%, Mah Sing was up 119.5% while UOA Development only rose 6.9%.

Kenanga said its top pick for the sector is MKH Bhd with a TP of RM1.83.

This was based on its focus on affordable homes priced below RM500,000 with strong demand from first-time house buyers, transit-oriented development projects that will benefit from the fuel subsidy rationalisation, and expanding plantation business in Kalimantan as well as its proximity to Indonesia’s new capital city of Nusantara.