Property price hike inevitable?

Some developers may opt to keep it down, for now, amid the volatility of raw building materials price


THE rise in property prices may be inevitable in tandem with the volatility of raw building materials price, although some developers may opt to keep it down, for now.

Firdaus & Associates Property Professionals founder and group MD Firdaus Musa said in certain cases, price hike of raw building materials will lead to higher prices of properties in the market.

Read more: Industry players brace for volatile material prices

“Property prices are heavily dependent on market forces so if the market value for properties is lower than the cost of building, we might see zero or lower new property launches in the market.

“Unless the developers are creative in product differentiation and cost cutting measures, we may see some new properties launching either with slightly higher property prices or current property prices but with smaller built-up or less finishings,” he told The Malaysian Reserve (TMR) in an interview recently.

“We can see a 30% to 40% price hike in raw materials especially coal or cement and steel which affects the costs in building materials and the construction industry greatly. These costs will inevitably be transferred to developers or absorbed by the construction companies to a certain extent. Depending on the current world scenario, the trend in price increase will be somewhat prevalent in these few years to come,” he added.

He believes that Malaysia’s property industry has always been resilient.

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For the past nine years, there were stable market prices with good market absorption despite oversupply and downward trend in property prices (in certain areas).

“With the hike in raw materials price, we would see more new innovations, creative space planning and new property products to match with the property market prices and the rising costs,” Firdaus said.

TMR reported yesterday that property and construction players expect the raw material and building prices will remain volatile for at least until the second half of 2022.

This situation has pushed the industry to implement cost optimisation measures to sustain profit margins.

UEM Sunrise Bhd CEO Sufian Abdullah said if the prices of building materials are still not stabilised, the firm expects higher costs from future tenders.

Kerjaya Prospek Bhd CEO and ED Tee Eng Tiong said the current situation will generally affect the property prices but there are many considerations that need to be taken into account when a developer prices its property.

Meanwhile, Asiacap registered valuer, agent and property manager Kit Au Yong asserts that inflationary pressure of upward cost also comes from the labour cost which is getting higher over the period.

“In view of the current phase of more opening up of our economic activities from the long Movement Control Order (MCO), things look more optimistic with more robust activities in place. In terms of how long this uptrend cost is going to hold, it depends on the factor that drives the demand and supply of the building materials.

“While the economy is opening up, most production activities are getting back to pre-MCO time and the producers are able to ramp up their production to keep up with the demand,” he told TMR.

“However, with input factors that are unfavourable to us like the imports and logistic cost that rely on the input cost factor of oil price and currency exchange, we are still vulnerable in controlling the cost. On the demand side, with our economic activity getting back to a more normalised position with better market optimism, it is expected construction activity will slowly get back on its feet to continue to develop and build more properties,” he added.

Commenting further on the issue of price hike of raw building materials leading to higher prices of properties in the market, he said it depends on how the market is going to perform.

“At one end, any building cost increase naturally pushes the real estate prices up from the developers. On the other end, it also depends on how the purchaser or potential purchase is reacting to any price increase. If the market is performing positively, which we think it is likely especially in the second quarter of this year, there is likelihood that the real estate prices will be affected by some form of price increase.

“It may also work the other way, if the price increases are not being perceived by the market well, developers still will find their way to create products that can maximise their profit, for example, smaller units with slight price reduction to offset the profit margin,” he said.

Recent official data from the National Property Information Centre shows that the real estate market in 2021 has improved slightly compared to 2020 which is a sign of market optimism for this year.

Kit believes that if the building cost remains high, it is likely developers will continue to pace their launches like 2021 which is less than 2020, saying: “They will likely try to tread carefully with limited launches to allow better absorption of the take up rate and try to maintain their profit margin with more creative products like smaller basic units. Some might even forgo some part of their profit margin while maintaining a competitive selling price.”

According to a survey by the Real Estate and Housing Developers Association (Rehda), construction costs are expected to increase by 19% in 2022 due to rising prices of construction raw materials, wages and financing costs.

Rehda president Datuk NK Tong also said that it is a challenge for developers to increase property prices and argued that some developers prefer to observe the situation first before setting the price of a property.

He added that the price hike in construction costs will also impact future property launches, which will then add pressure to the already dwindling profit margins of developers.

The survey conducted showed the price hike in building materials are aluminium (55%), timber (52%), steel (38%), cement (19%), sand (18%) and concrete (16%).