Source from: New Straits Times, Original Article
KELANA JAYA: The cost of doing business for property developers continues to climb, and this may cause the price of residential properties (landed and high-rise) to increase.
According to Datuk NK Tong, president of Rehda Malaysia, the construction climate is becoming more difficult for developers.
“There are too many hurdles in the 100-metre race, which is taking longer to run. Construction costs have risen, and the units have become more expensive.
“If the costs continue to go up, we have to pass it on, especially for affordable housing,” Tong said at a briefing on Rehda’s property industry durvey for the first half of 2023 (1H2023) and outlook in the next 12 months.
According to the poll, the overall costs of doing business climbed by an average of 15 per cent in 1H2023, compared to 13 per cent in 2H2022 for an average of 75 per cent of respondents.
At least 49 per cent of respondents claimed the present economic situation has had a moderate impact on their business operations, compared to 58 per cent in 2H2022.
In 1H2023, 17 per cent reported the present economic climate had a significant impact on their business operations, compared to 18 per cent in 2H2022.
Respondents estimated an annual increase in average cement, concrete, and sand prices of more than 10 per cent as of June 30 this year.
Cement costs 21 per cent more than concrete, 13 per cent more than sand, nine per cent more than glass, three per cent more than wood, four per cent less than steel, and six per cent less than aluminium.
At least 87 per cent of respondents reported a larger increase in building material prices in 2023 than in prior years.
This was considerably lower than before (zero per cent), considerably lower than before (two per cent), about the same as before (11 per cent), higher than before (47 per cent), and much higher than before (40 per cent).
Adoption of an industrialised building system (51 per cent), construction of higher density developments (48 per cent), construction of smaller units (43 per cent), design changes to accommodate cost increases (39 per cent), use of more cost effective materials (35 per cent), lower profit margins (21 per cent), and an increase in property selling prices (19 per cent) were among the measures taken to address rising building material costs.
As a result of the increased costs of business operations, the affected respondents used cost-cutting measures such as suspending recruiting, offering fewer benefits or perks, and reducing staff compensation.
Due to low demand, some developers have rescheduled their planned launches, reduced the volume of debuts, and delayed initiatives.
Meanwhile, 53 per cent of respondents expected to begin their initiatives in 2H2023.
The major reason (49 per cent) given by the remaining 47 per cent who do not intend to debut is the bad market conditions.
“Unfavourable market conditions are more a perception of their outlook. Because of rising costs and cross-subsidy, developers may have an indication that the market may not be able to accept that kind of pricing,” Tong said.
He added that 35 per cent of respondents were not launching due to business constraints (financing, operation), 27 per cent due to a lack of suitable product/land bank location, 24 per cent due to a higher number of unsold stock, 16 per cent due to a delay in approval from authorities, and five per cent due to a lack of buyer’s demand in project location.
Thirty-four per cent of respondents with upcoming launches (8,802 landed: 15,310 stratified) expected their sales performance for the first six months to be 50 per cent or lower.
