Real estate in Malaysia may not be a good hedge against inflation at this time given that property price appreciation will be limited due to the ongoing supply glut, says RHB Research.

Further, the inflation upcycle will not likely translate to substantial demand and earnings growth due to the sharp increase in building materials costs that started in 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 the developers will be able to pass on the additional building costs via higher property selling prices,” said the research firm.

In addition to lacklustre demand and rising costs, RHB noted that Budget 2022 did not include 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 MRT3 [Klang Valley Mass Rapid Transit Line 3] project.

“The property sector will probably have to continue tapping on the current ongoing infrastructure projects to spearhead the recovery,” it said.

Meanwhile, RHB expects the next general election to be called soon, which has showed to create lacklustre demand for property stocks six months prior to nationwide polls due to the uncertain outlook post-election.

RHB estimates 2021 sales growth to be about 70 per cent compared to a contraction of 16.4 per cent year-on-year in 2020.

For 2022, it projects 10-15 per cent year-on-year sales growth given the higher base in 2021.

Its top pick is Matrix Concepts with a target price of 2.47 ringgit ($0.59).