House prices increasing due to high costs

Property News/ 4 September 2013 Leave a comment

Property developers say increasing house prices are due to high compliance and construction costs.

They also attribute the rising cost to government agencies, especially local authorities and utility companies, said Real Estate and Housing Developers’ Association Malaysia (Rehda) deputy secretary-general (Melaka branch) Datuk Anthony Adam Cho.

According to Cho, the total development cost of a project can be reduced by around 20 per cent if the compliance cost is lowered.

The development cost of a project is based on five factors, namely construction cost, land cost, compliance cost, interest for borrowings and developers’ profits.

In most cases, the development cost is about 70 per cent to 80 per cent of the project’s total gross development value, Cho said.

The biggest cost is construction, ranging between 50 per cent and70 per cent of the total project. Compliance cost takes up about 15 per cent to 25 per cent, he said.

Compliance cost includes levies and contribution to authorities, and building infrastructure for utility companies within the project, Cho said.

Developers are also required by Telekom Malaysia Bhd to incur between RM4,000 and RM6,000 per unit to install high-speed broadband infrastructure in their projects, or risk their development application being rejected by the Malaysia Communications and Multimedia Commission.

“Our margins are squeezed also because of the Bumiputera cross subsidies on discounts and low-cost houses. The more expensive the unit, the more discount is given. The poor is basically subsidising the rich.

“We hope the government will review the housing quotas and discounts allocated to Bumiputeras, and also look into other matters relating to property development, which can help to lower the overall cost of doing business,” Cho said at a media briefing yesterday. Sharen Kaur

Source: Business Times

  1. HUAT
    September 4th, 2013 at 21:18 | #1

    Prices still increasing!!!!!
    Well partially as stated above due to compliance s, quotas and etc…
    Not entirely due to speculation which some claimed ALL the time!

  2. Angel
    September 4th, 2013 at 21:40 | #2

    Housing price still increase even next year. We can see the market trend very clearly..Next year probably 10% again with healthy growth for prime location.

  3. truth
    September 4th, 2013 at 22:19 | #3

    Expected… House price still has plenty of space to climb

  4. Economic Crisis
    September 4th, 2013 at 23:18 | #4

    REALLY… So why is it that China it cost 60% less to build the same condos using the same materials????

    The only thing that is rising is the Developers PROFITS…

  5. Economic Crisis
    September 5th, 2013 at 00:05 | #5

    Before 2008 the developer was making 10-20% profit margin.
    Now the developer is making 70-80% profit margin…

    So all that rise in prices is just an illusion… all it was is the developer increasing profits with construction cost only going up slightly…

    From you logic house prices should have gone down since the Ringgit became stronger against the US dollar from 2009-2012, which would have made the cost of materials cheaper…

  6. Economic Crisis
    September 5th, 2013 at 00:42 | #6

    Which article??? hahahahaha…. Really?? You mean if it’s not in an article it can to be true or can not exist???

    I used to work for a large construction company in the UK… I was in charge of the financial modelling of projects… So for me based on my experience and the general cost of construction materials, labour, marketing, overheads in Malaysia (just to name a few) very easy to work out the profit margin…

    No doubt the developers will increase the prices… Probably closer to 20%… even thought their increase in cost will be less then 5%…

    I can guarantee the property market is going to collapse here because I saw how it happen in Ireland… Same thing property prices going up mainly because the developers were just increasing profit margins… until the banks tightened lending criteria and no one was left to buy these properties…

    Sounds familiar with what is happening in Malaysia???

  7. Elmo
    September 5th, 2013 at 07:10 | #7

    It will collapse one day which is for sure. Question is only when but not for the next 2 years for sure. Always demand and supply. Wait till the recession hit the economy only it will collapse. As a economist, I won’t argue so much as I’m a specialist analytic and know what I should look at.

    Everything is based on fact. Fact won’t lie.

  8. hi
    September 5th, 2013 at 09:39 | #8

    Penang property still in increase trend due to limited land on island. Crash might not happen in this 3years also..

  9. yo
    September 5th, 2013 at 09:42 | #9

    GST might cause goods and import material price to increase. Property might slightly affected as the price still increase upwards.

  10. ezalor
    September 5th, 2013 at 10:58 | #10

    profit margin 70% sound so ridiculous. So, 500k house price, total cost only 150k?!
    You ask people come to renovate simple simple already 50k liao lar.

  11. coco
    September 5th, 2013 at 11:04 | #11

    Latest news new property price launch price will increased 10% according to REDHA big guy, reason fuei increase 20sen, cement price increase and he mention another most of the illegal worker absent to work and some kena tangkap, ya good reason given.

  12. Economic Crisis
    September 5th, 2013 at 11:10 | #12

    This is why people like you don’t understand property markets… You can’t even comprehend simple mathematics…

    The profit margin is calculated from the cost price of the development…. So the total cost for a 500k house is 294k…

    Let me make it very clear to you…. Total cost is 294k, now add 70% profit margin which is 0.7 x 294k = 206k, now add total cost to profit margin 294k + 206k = 500k now you have the selling price…

    Pleas just go buy another overpriced property and let the smart people make real money…

  13. david
    September 5th, 2013 at 11:24 | #13

    There will be ton of reason from developer to increase the price. Any reason that out of your mind but is true even is small impact & them (greedy devloper) will make it such a sky falling down news. Profit margin drop lah, delay construction lah, increase price lah (sound like whole building is build by petrol).

  14. own choice
    September 5th, 2013 at 11:30 | #14

    @Economic Crisis

    How come the public listed developers only declare 10% profit in most of their earning call? Do you mean they under declare their operating profit all this while?

  15. coco
    September 5th, 2013 at 11:54 | #15

    What to do we cannot blame developer /businessman, this morning our mamak businessman inform me the “teh tarik ‘ price will go up to 20cent from tomorow onward, everyone take opportunity to increase price. a href=”#comment-160728”>@david

  16. condomana
    September 5th, 2013 at 12:28 | #16

    It is surely reasonable for an end product to increase in price when the cost of producing it is increased. In terms of properties, that same principal should apply too, provided 2 things are being taken care of; (1) speculation (2) cartelism.

    To reduce speculation, anti-speculation policies have to be put in place, whether it’s in the form of RPGT, stamp duty, vacant property tax etc, as long as it discourages speculation and makes the cost of it not worth the while.

    As for cartelism, the gov has to make sure that non-profit driven good quality (as good as private condos) gov housing is adequately supplied into the market not only for the low income group, but for the mid income group as well. This will prevent profiteering by developers as well as land owners, sometimes you really can’t tell between the 2…;)

    As long as these 2 major elements are taken out from the house price formula, we should have no problem, even if property price goes up….:)

  17. SO FUNNY
    September 5th, 2013 at 12:37 | #17

    Australia is one the most expensive countries in the world yet you can get beach front Condos in Surfers Paradise that are 1000 square feet for under $200,000 (RM 580,000) Yet in Penang that is basically a 3rd world country (20-30 years behind Singapore) similar Condos are 1mil plus… Both places have limited land, cost of construction materials in Australia is much higher then Malaysia…

  18. coco
    September 5th, 2013 at 12:53 | #18

    really but many ppls in this forum still argue that penang island property price very cheap.

    SO FUNNY :
    Australia is one the most expensive countries in the world yet you can get beach front Condos in Surfers Paradise that are 1000 square feet for under $200,000 (RM 580,000) Yet in Penang that is basically a 3rd world country (20-30 years behind Singapore) similar Condos are 1mil plus… Both places have limited land, cost of construction materials in Australia is much higher then Malaysia…

  19. HUAT
    September 5th, 2013 at 13:16 | #19

    Property developers say increasing house prices are due to high compliance and construction costs.

    If compliances is lowered, which eventually leads to lowered property prices slightly.. Do you think is acceptable?

    If construction cost is lowered be it material, labor, equipments and etc, do you think quality will be affected?

    Well i personally think that the compliances were imposed (not just fiber connections) for a reason. The same goes to why construction cost increases as well (wages has to go up for the workers, so cost up as well)..and Many other reasons.

    One day if a news declaring to public that new properties prices will be lowered by 10% because of some compliances being removed, then we start to question, what has been removed. Nothing is free. That goes for developers responsibility to fully comply with the High compliance which impact buyers in the end on the cost.

    Perhaps anyone here kind enough to share your knowledge specific to this matter.

  20. Developer A
    September 5th, 2013 at 13:20 | #20

    I have 1001 reasons to justify why you should pay more.

  21. chai
    September 8th, 2013 at 21:21 | #21

    property price high is not new thing. my mother told me 50-60years ago she also felt batu ferengi single storey house was expensive, that time was RM7k. 10 years ago when i started look for apartment in penang, that time was <100k. i also think very expensive. Now everyone think property is expensive. lets wait and look back 5 years later… :)

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