Property sector’s current slowdown to be short-lived

PETALING JAYA: The property sector’s current slowdown is likely temporary, as healthy fundamentals are expected to underpin demand recovery once the Middle East conflict and election-related uncertainties stabilise.

According to RHB Research, aggregate property sales for the first quarter of financial year 2026 (1Q26), excluding land sales recorded by IOI Properties Group Bhd, dropped by 4.6% quarter-on-quarter but increased by 11.9% year-on-year.

Despite demand turning slightly softer, particularly in the low to mid-range residential segment, the research house said this should be short-lived.

It noted that developers continue to report strong sales in the industrial segment, indicating that local and foreign multinational corporations are still expanding, while demand in the higher-end segment remains strong, driven mainly by upgraders, investors, and foreign buyers.

“The low-to mid-range residential segment is more susceptible to changes in market conditions, and is likely to see higher loan rejection,” it added.

RHB Research said it anticipates 2Q26 property sales to be sequentially stronger, given that most launches by major developers in 1Q26 took place around late March.

“The ramp-up in new launches could also help buffer slight weakness in margins resulting from conflict-related inflationary pressures and elevated energy costs.”

Moreover, RHB Research noted that all developers under its coverage have maintained their pipeline launches and sales targets.

Additionally, it said developers have been able to weather cost pressures such as higher building material prices and sudden labour shortages in the past.

“Most of them have grown much stronger and nimbler – they are now able to manage such situations by offering different products or reconfiguring their product designs and specifications, as well as adjusting product prices accordingly with minimal impact on demand,” the research house said.

“As such, we do not foresee a significant downside risk in developers’ 2Q26 net profits.”

Furthermore, it said the property sector, along with the broader equity market, has largely corrected, with current valuations already pricing in downside risks to earnings.

RHB Research, however, flagged that the “election noise” may impact the wider equity market as well as the property sector.

“The market may potentially interpret results for the recent two state elections as indicators for the unity government’s solidity and voter support,” it pointed out.

Given that the sector historically tends to range-bound six-to-nine months ahead of general elections, potentially due to investor concerns over economic policy uncertainty, the same trend is expected to appear ahead of the upcoming general election.

Meanwhile, the research house said it is more confident on Iskandar Malaysia’s property market, with the upcoming unveiling of the Special Economic Zone Investment blueprint and expected completion of the Johor Baru-Singapore Rapid Transit System Link in December.

It maintained its “overweight” call on the property sector, noting that it is currently trading at 55% discount to revalued net asset value, and hovering closer to one standard-deviation above its long-term historical mean.