Property developers may expect moderate margin compression in the short term due to rising building material costs, according to MIDF Research.
The rising cost of petroleum products has pushed up the cost of construction materials like cement and steel.
According to the firm, increasing raw material costs would result in greater costs for property developers.
"While we reckon that property developers may partially pass on the higher building materials cost to property buyers by raising property selling prices marginally, we think that property developers are likely to face slight margin compression in the near term as they may not be able to fully pass on the cost increase to property buyers considering the present subdued property market," it said in a note.
According to Bank Negara Malaysia data, total loan applications for property purchases were steady in March 2022 at RM44.9 billion (+0.1 per cent year-on-year), after increasing by 9.2 per cent year-on-year in February 2022.
In the first quarter of 2022, total loan applications for property purchases totaled RM108.1 billion, up 4.06 per cent year on year (1Q 2022).
Higher demand for the property following the reopening of the economy drove up property loan applications.
Property loan applications increased to RM44.9 billion (+56.8 per cent month-on-month), due to the low base in February and the fact that it was a short month.
After expanding by nine per cent year-on-year in February, total loan approvals for property purchases increased to RM16.4 billion (+17.8 per cent year-on-year) in March 2022.
In 1Q 2022, the total loan sanctioned for property acquisition climbed by 19.4 per cent year on year to RM42.4 billion.
The higher authorised loan was mostly due to increased loan application and a higher percentage of total approved loan over the total applied loan of 39 per cent in 1Q 2022 compared to 34 per cent in 1Q 2021.
"In a nutshell, we see higher approved loan should translate into better new property sales outlook for property developers in 2022," the firm said.
According to MIDF, greater loan application and approved statistics in March 2022 indicated that property demand is still recovering, which is consistent with the firm's forecast of somewhat improved new property sales.
It believes that due to the economy's reopening, new property sales will be marginally better in 2022.
"Nevertheless, we think that the property developers may face cost pressure in 2022 due to rising raw material costs. Hence, we maintain our Neutral call on the property sector.
MIDF's 'BUY' calls for the property sector are Mah Sing Group Bhd (BUY, TP: RM0.80) and IOI Properties Group (BUY, TP: RM1.29).
The firm remains bullish on Mah Sing, expecting stronger profitability in 2022 as a result of higher progress billing and contribution from its glove manufacturing segment.
New property sales are expected to be better in 2022 due to its strategy of building affordable range properties, it said.
Mah Sing has set a new property sales target of RM2 billion for the fiscal year 2022, with RM2.4 billion in planned launches.
MIDF is also positive on IOI Properties Group due to its undemanding valuation of trading at a steep discount of 72 per cent to the latest net tangible asset (NTA) of RM3.60 per share.
Due to the restoration of economic activity and the reopening of Malaysia's national borders, it expects earnings recovery for its investment properties, as well as its hotel and leisure divisions, in 2022.
China and local developments will boost the group's new property sales outlook.