Property developers advised to undertake cost mitigating measures

The Star 26/04/2004 By Angie Ng

ALTHOUGH the price of new property launches will most likely see a 3% to 5% rise following a hike in building materials cost, developers do not expect a price bubble in the residential sector as prices are expected to remain stable after this.

Real Estate and Housing Developers Association (Rehda) president Datuk Jeffrey Ng said despite the increase in the construction materials cost, it is unlikely that developers would be discouraged from building more properties.

The overall increase in construction cost attributed to the building materials including steel bars and steel-related products was estimated to be between 8% and 15%.

Developers have been advised to take some mitigating measures such as substituting higher-priced imported materials with those of cheaper cost materials of comparable quality, look for ways of simplifying architectural and structural designs as well as study different construction methods that can save costs.

“Any price increase will be modest and should not have any detrimental effect on demand.

“In fact, supply will continue to increase in tandem with the property up-cycle due to the country's optimistic economic outlook and stronger demand for properties,” he told StarBiz.

From early last year, Rehda had cautioned developers of the need to conduct proper market surveys as well as pre-launch registrations to be sure of the viability of their projects in order not to aggravate the over-supply situation.

Ng said the property market would remain robust these two years in view of the improved economic outlook, a continuing pro-business and stable government and stronger market confidence.

“We expect demand to increase further with the higher disposable income, the positive outlook of the stock market and expectation of an inflow of more foreign investments into the country.

Apart from the traditional owner-occupier home buyers, we also see a growing trend of property purchase for investment purpose.”

He said not all developers would be able to pass on the higher cost to house buyers because of the very competitive market and might have to suffer lower profit margins in order to maintain sales.

“Ultimately, it is a question of supply and demand as to whether the higher prices are accepted by the buyers.

“This also depends on the reputation and track record of the developers, product design and the overall development concept.”

Saujana Triangle Sdn Bhd chief operating officer Peter Chan said the recent increase in cost of construction materials would be reflected in the company's new project launches.

“We expect to revise the price upward by between 2% and 3% in our future launches.

Projects that have been launched and their contracts awarded will not be affected as we have already locked in their cost.

Any cost over run have to be absorbed by the main contractors based on the terms in the lump sum fixed cost contracts.

“As such, the pricing for properties that come under those schemes will stay.”

Usually a project would be awarded to the main contractors about six months after its sales launch.

Chan said following the hike in the cost of construction materials, future quotes for building works are also expected to appreciate accordingly.

Given the good location and strong demand for the company's Damanasara Perdana properties, the increase in sales price would only have a marginal effect on purchase.

“Projects in good locations are not expected to see any adverse impact but those without the location advantage, will have to cut cost from other place or the developer has to reduce its profit margin,” Chan said.

Sunway City Bhd (SunCity) managing director Datuk C.K. Wong said to mitigate the appreciation in construction cost, the company has adopted value engineering and management which has resulted in more efficient material procurement and choice of materials used.

“We look at the quality and functionality of all the components that go into building a house and try not to over design the house.

Components used are standardised to meet the minimum quality standards.

This initiative has resulted in cost savings of at least 2%.,” he said.