PETALING JAYA: The property prices in Iskandar Malaysia (IM) are expected to stay weak and flat over the medium term as there will be more incoming supply ahead, whereas the Klang Valley's property market appears to be more sustainable, according to Maybank Kim Eng Research. The oversupply of properties in IM is more apparent in the mixed-use and high-rise residential front, said Maybank Kim Eng Research analyst Wong Wei Sum in a report last Friday. She has maintained a "neutral" view on the property sector, with a preference on the Klang Valley over Iskandar Malaysia, as strong population growth potential (more than 40% growth by 2020) in the Klang Valley offers more sustainable demand for properties, coupled with the immiment approval of the MRT Line 2. "That said, the Johor Baru-Singapore rapid transit system could reignite investors' interest in IM and IM-related stocks," she said. She noted that Malaysian developers are scaling back and slowing down on their new launches in IM hotspots like Danga Bay and Nusajaya-Medini, and shifting their focus to landed and industrial properties due to rising competition in the high-rise integrated property segment. "We remain cautious about the increasingly crowded development space in IM. Oversupply of apartments/retail spaces in hotspots such as the Nusajaya-Medini and Danga Bay areas may cause a decline in property values over the medium term," she said. Johor's House Price Index (HPI) contracted 1.6% quarter-on-quarter in Q2 2014, the first decline in 27 months on weaker buyer sentiment due to government cooling measures effective January this year. Wong, therefore, has raised concern over the sustainability of property prices in IM, especially for high-rise apartments and retail spaces. "The focus is now more on whether the demand for high-rise apartments and retail space can keep pace with the incoming supply (serviced apartments, hotels, offices and retail spaces) from aggressive launches by the Chinese developers over the past year," She pointed out that take-up rate for new launches is generally slowing down as demand for recent property launches has not been as robust as 2H 2012-1H 2013. However, she said there will be more supply coming in, such as China's Greenland Group has started registering interest for its maiden project, known as "Jade Palace" in Danga Bay. She added that Iskandar Waterfront Holdings Sdn Bhd is still in talks with several foreign developers to sell some of its land in Danga Bay and Permas Jaya and may announce the deals sometime soon. According to Wong, the entrance of more new foreign developers in IM could further raise fears of a housing glut there, thus many Malaysian developers have turned cautious over the medium-term outlook of the Johor property market, especially in the overcrowded mixed-use and high-rise residential project space. "To avoid direct competition with the foreign developers, Malaysian developers are either switching their focus to townships, business parks and land sales or moving out to the suburbs such as Kulai and Senai to meet the strong demand for affordable housing," she said. She stressed that without coordinated planning and control, the IM property market could be hit by too much supply of high-rise mixed development projects, inducing price volatility. "This may affect UEM Sunrise Bhd and Sunway Bhd's medium-term outlook as most of their landbank is located in the hotspot areas," she said, citied sources as saying that the listing of Iskandar Waterfront Holdings will also likely be delayed to 2H 2015. Stock-wise, Maybank Kim Eng Research's top pick is Eco World Development Group Bhd, supported by its strong management team which has a proven track record and its property launches have received remarkable take-ups with well-planned products in the right locations.