Rising material costs put developers in limbo

04/08/2008 The Star By David Tan

THE escalating cost of building materials is raising concerns over the widening gap between the income levels and the selling price of properties as well as availability of affordable housing.

“A family with a combined monthly income of RM10,000 is eligible to obtain a mortgage loan of about RM350,000 from a commercial banking institution. But how many fall in this income bracket?,” asked registered and chartered valuer C.A. Lim & Co proprietor Lim Chien Aun.

“From statistics collected, the average employee monthly income is RM2,000 to RM4,000. On a joint basis, this enable the purchasers to obtain a mortgage loan for a property valued at about RM200,000.

“But with the rising cost of building materials and construction, a RM200,000 residential property will be about 30% higher if other factors affecting the market value remain as it is today.”

Steel bars have gone up to RM4,100 per tonne compared with RM3,500 in June while cement is sold at RM13.45 a bag compared with RM10.95.

Lim Chien Aun

Across the board, all types of commonly used construction materials have increased by 15% to 30%.

Less than 5% of the families in Malaysia have a combined income of RM10,000 and above

Lim said the Penang state government should seriously encourage the development of more affordable housing schemes on the island.

It also has to find ways to address the plight of house owners in view of the current spiralling cost of living.

“One way is to reappraise the plot ratio. Presently the plot ratio on the island allows the developer to build 3.5 times per sq ft.

“This plot ratio needs to be reappraised, taking into consideration the additional infrastructure requirements that can be added to a specifically identified area.

“Such a revision will allow a developer more space to construct a variety of homes for different income groups,” he said.

Presently, developers are complaining that the existing development guidelines on the island are too restrictive. For each acre, developers are allowed to develop 15 units of 1,400 sq ft properties, or 30 units of 700sq ft properties.


A filepic of terraced houses in Tanjung Bungah. Rehda sees fewer projects being launched in Penang this year

With the present land and construction costs, this works out to about RM600,000 to develop a high-rise unit of a 1,500sq ft.

This is why developers on the island are not able to price their properties affordably.

But with a higher plot ratio, developers can spread out their development costs and build properties with different lower price range.

Lim also urged the Penang Development Corp to work with the private sector to create more affordable and improved housing projects, taking into account the interest of the people, especially the working population.

“Otherwise, only the very rich can afford to stay in George Town, leaving the other parts of the island to become a blighted zone,” he said.

Lim is also concerned over the impact of higher interest rate on the property market. It is speculated that the banking authorities may raise interest rates by 0.5% soon.

“This may lead to a forced selling situation for those who cannot hold on to their properties due to higher mortgage repayments as well as the rising living and maintenance costs.

“Should this happen, there will be a negative impact on property prices and the livelihood of the general population which can affect the economy,” he said.

At a press conference recently, Real Estate Housing and Developers’ Association (Rehda) Penang chairman Datuk Jerry Chan appealed to the state government to allow developers to build projects with higher density and larger built-up areas in the city.

In view of soaring energy and building prices, he said there would be no development of new low-cost and low-medium-cost housing projects, which were currently priced at RM42,000 and RM75,000 respectively.

“We are appealing to the state government to revise these prices.

“Developers will resort to building only expensive homes comprising less than 150 units per scheme, which does not require them to build affordable housing,” he added.

Chan expects fewer property projects to be launched in Penang this year due to the rising cost of fuel and building materials.

“This is reflected in the new launches lined up for exhibition at the Malaysian Property Exhibition (Mapex) 2008 held recently.

“There were only three new launches this year for Mapex 2008 with a gross sales value (GSV) of RM44.5mil, compared with seven last year which had a GSV of RM300mil,” Chan added.

Henry Butcher Malaysia (Penang) director Dr Teoh Poh Huat concurred that fewer residential project launches were expected in the immediate term due to the rising development costs, including fuel and building materials.

Based on today’s land value and the existing local authority’s planning guidelines, he said it would be difficult to supply affordable homes in the near future unless the basic macro and micro challenges were promptly addressed.

The mid-end of the market will also be affected but to a lesser extent, compared with the affordable home sector.

Teoh said the high-end market would continue to attract entrepreneur’s attention, as it offered the highest margins.

He said recent foreign interests in Penang’s real estate had supported property values at levels that were unheard of in the past.

“This augurs well for the prospect of Penang’s real estate as it encouraged greater product innovation and creativity.

“Penang is now better known as a 'ought to visit' destination for property investment,” he said.