PETALING JAYA: Property sales momentum will likely remain decent next year in tandem with the expected economic recovery.

       However, property developers will likely experience greater margin pressure due to rising costs.

       This is according to RHB Research, which noted that prices for many key commodities – such as crude oil, aluminium, steel bar and copper – have risen significantly, by 20% to 50% year-to-date.

       “Developers, especially those with many high-rise projects, are expected to absorb some of the construction costs that may be passed on by contractors.

       “On the other hand, developers are not in a position to pass on the higher building material costs to their buyers, as the current market environment does not allow a good property price growth,” said the brokerage.

       RHB Research also noted that over the years, developers’ profit margins had been trending down as they are selling more mid-range products and offering attractive discounts and rebates to draw buyers.

       It maintained its “neutral” call on the property sector, which has rallied quite strongly, especially over the last two weeks.

       The Bursa Malaysia Property Index has appreciated 7% to 8% versus a flat performance for the FBM KLCI since the reopening of the economy in early September.

       “Given the Budget 2022 disappointment, many property stocks are expected to see some correction over the near term.

       “The sector is currently trading at 64% discount to revalued net asset value from 68% in late August,” said RHB Research.

       The research house’s top pick remains Matrix Concepts Holdings Bhd, given its consistent earnings and dividend delivery.

       RHB Research said property developers might now be somewhat conservative with property sales growth in 2022.

       It added that the impact of Cukai Makmur (prosperity tax) may be difficult to quantify for now but it opined that the impact should be relatively manageable.

       The research house said developers may be less affected by the imposition of the proposed one-off Cukai Makmur announced in Budget 2022, as most typically have many entities within the group.

       “If the special tax is imposed at entity level, we believe these entities will unlikely be subjected to the tax, given the RM100mil threshold level,” it said.

       Also, RHB Research opined that the negative sentiment on the macroeconomic front and lack of new mega infrastructure projects in pump priming will mean developers may be less aggressive in pursuing significantly higher property sales next year.

       It said the lack of new mega infrastructure projects in Budget 2022 is another disappointment.

       “Such developments, for example the mass rapid transit project, apart from the associated multiplier effect in the economy, would typically yield a positive spillover to the property market.

       “Hence, the sector will probably have to continue tapping on the current ongoing infrastructure projects to spearhead the recovery,” said the research house.