KUALA LUMPUR (Jan 6): A resurgence of daily Covid-19 infection cases following the emergence of new variants, high building material prices, a potential overhang among property stocks ahead of the general election and earlier-than-expected rate hikes are hindering real estate from recovering, said RHB Investment Bank.

In a note on Thursday (Jan 6), its analyst Loong Kok Wen who maintained "neutral" on the sector said that despite an encouraging pickup in demand for property in 2021, she believes the sector is still facing negative headwinds that may hinder the continued recovery in property sales as well as earnings growth.

She estimated 2021 property sales growth to be around 70%, compared to a contraction of 16.4% year-on-year in 2020.

For 2022, she expects property sales to grow by 10% to 15% year-on-year, given the higher base in 2021.

She opined that sales in the first quarter of 2022 will likely be soft as the government had not extended the Home Ownership Campaign.

In anticipation of an inflationary environment, the analyst said that real estate may not be a good inflation hedge this time around as property price appreciation will be limited given the supply glut.

According to her, the inflation upcycle is unlikely to translate into substantial demand and earnings growth, largely because of a sharp increase in building material cost that started since the second quarter of 2021.

“Many commodities, such as crude oil, steel, copper and aluminium, are seeing significant price hikes. As economic growth has just started to recover and

given the continued oversupply condition, we do not think developers will be able to pass on the additional building cost via higher property

selling prices.

“Hence, in our opinion, real estate may not be a good asset class to hedge against inflation this time,” she said.

She also noted Budget 2022 lacks catalysts for the sector.

“Apart from the withdrawal of the real property gains tax for disposal of properties beyond year five, the government neither mentioned any plans to attract new domestic and foreign direct investments nor new economic corridors to restart the economic engine.

“There was also no mention of any new mega infrastructure projects, and only a brief mention of the Mass Rapid Transit 3 (MRT 3) project. The property sector will probably have to continue tapping current ongoing infrastructure projects to spearhead the recovery,” she added.

While the recent state elections in Melaka and Sarawak may point to short-term political stability, she thinks the next general election to be called soon could lead to a potential sector overhang. 

“Taking a cue from the historical trend, investor interest in the sector is usually lukewarm and the performance of most property stocks is typically lacklustre six months prior to the nationwide polls, possibly due to an uncertain post-election outlook,” she explained.

Her top pick for the sector is Matrix Concepts Holdings Bhd (target price [TP]: RM2.47) as she likes the company for its solid balance sheet, consistent property sales, earnings and dividend delivery.

She also has "buy" calls on IOI Properties Group bhd (TP: RM1.53), LBS Bina Group Bhd (TP: 63 sen), Sunway Bhd (TP: RM2.06) and Tambun Indah Land Bhd (TP: 87 sen).

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