RHB Is Neutral On The Real Estate Sector

RHB Research has made a “Neutral” Recommendation on the Real Estate Sector with its top pick as Matrix Concepts Holdings Bhd (MCH).

It said that despite the encouraging pick-up in demand for property in 2021, there are still some negative headwinds that may hinder the continued recovery in property sales as well as earnings growth.

 These include a resurgence of COVID-19 daily infection cases or the emergence of new variants; building material prices staying at high levels; a potential overhang among property stocks ahead of the general election; and iv) earlier-than-expected rate hikes.

It expects 10-15% YoY growth in sales in 2022. “We estimate 2021 property sales growth to be around 70%, compared to a contraction of 16.4% YoY in 2020.

“For 2022, we expect property sales to grow by 10-15%YoY (given the higher base in 2021). Sales in 1Q22 will likely be soft as the Government did not announce the extension of the Home Ownership Campaign (HOC)

RHB said that it was positive that the real estate may not be a good inflation hedge this round.” In anticipation of an inflationary environment, we think the property price appreciation will be limited, given the supply glut,” RHB said.

It said that the inflation upcycle will not likely translate to substantial demand and earnings growth, largely because of the sharp increase in building material costs that started in 2Q21.

The research house said that many commodities such as crude oil, steel, copper, and aluminium are seeing significant price hikes but as economic growth has just started to recover and given the continued oversupply condition, it does not think the developers will be able to pass on the additional building costs via higher property selling prices.  Hence, RHB said that Real Estate may not be a good asset class to hedge against inflation this time.

It said that apart from the withdrawal of the real property gains tax (RPGT) for disposal of properties beyond Year 5, the Government neither mentioned any plans to attract new domestic and foreign direct investments, nor new economic corridors to re-start the economic engine.

RHB said that there was also no mention of any new mega infrastructure projects and only a brief mention of the MRT 3 project. The property sector will probably have to continue tapping on the current ongoing infrastructure projects to spearhead the recovery.

On its stock-pick, RHB said that it likes MCH for its solid balance sheet, consistent property sales, earnings, and dividend delivery.

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