Every1 must stop buying property now and hold and make the market drop price, if keep increasing like this every new property will be priced at 500k above alredi

no worries, it will come, somehow someone will cry then..

The Star Online > Business
Saturday June 18, 2011

Rising costs a challenge for developers

BRICKS & MORTAR
By TEH LIP KIM

A LOT HAS been said about how much it costs now to buy a house or an apartment.

For someone who is just starting out, or for a newly married couple looking to buy their first home, it can mean making a huge sacrifice elsewhere just so there is enough money for the down payment and then the monthly instalments on the home loan.

Many people have chosen to attribute the high cost of new properties to developers or, more precisely, the perceived penchant of builders to raise prices for every new project launched.

Rightly or wrongly, fairly or otherwise, developers do bear most of the brunt for the “high” prices of new properties.

But just like any other business people, developers know that pricing their properties out of the targeted market's price range will surely put them out of business.

Prices of new properties are determined by how much it costs the developer to put up these structures in the first place, and the prices of land and building materials have been rising over the years.

The price of land, especially in or close to urban centres, has gone up exponentially. As an example, let us look at one locality in Kuala Lumpur and compare the prices from 2005 and 2011. In September 2005, a terrace house on Jalan Terasek 2, Bangsar Baru, was sold at RM363 psf. In February this year, another house on the same street was sold for RM668 psf, an increase of more than 80% in just over five years.

The cost of building materials has also gone up as the demand for more homes expands with population growth, improving standard of living and widening affordability.

The ratio between the construction cost and the price paid for the land varies from country to country. In Malaysia, it can be safely assumed that the ratio is about 70:30, with the construction cost taking up the bigger portion.

What are the materials that go into building a home, and how significant a portion of the total cost do they account for? Items that come to mind quickly are cement, sand, bricks, concrete, roof tiles, etc.

Also significant but hardly visible in any completed structure are steel bars, fabric reinforcements and numerous other components that are essential in the construction of a building.

For instance, steel bars may account for up to 20% of the total construction cost, while concrete takes up another 15%. Another significant component is masonry works, which can account for about 10% of the cost.

One only has to check the prices of these items over the past five to six years to realise that they have gone up significantly, some by more than 70%.

To illustrate this argument, let us take a look at the prices of some of these items from say, 2005, and compare them with today's prices.

To ensure the figures we use are reflective of industry levels, we have opted for numbers compiled by the Construction Industry Development Board (CIDB) of Malaysia.

According to the CIDB figures, the cost of 10mm-12mm mild steel round bars rose from RM1,647 per tonne in 2005 to RM2,608 in January this year, an increase of just over 58%.

In the same period, the price of the 16mm-32mm mild steel round bars rose from RM1,563 to RM2,534, an increase of 62%.

The price of 10mm-12mm high tensile deformed bars went up from RM1,685 to RM2,608, a 55% rise. The 16mm-32mm high tensile deformed bars cost RM2,493 in January this year, up 56% from five years before.

Fabric reinforcement, another important component of construction, has also seen significant price increases. According to the CIDB figures, the price of A7 fabric reinforcement has risen from RM1.79 to RM3.08 per kg up 72%. That for the A10 type went up from RM1.86 to RM3.07 or 65%.

Sawn mixed hardwood and waterproof plywood, which are essential in building the moulds into which concrete is poured, have seen similarly high increases in price. A cubic metre of sawn mixed hardwood cost RM1,290 early this year, up 57% from RM820.

Less substantial, though not less significant, are increases in the prices of sand, bricks, concrete and waterproof plywood. The price of a metric tonne of river or mining sand went up from RM14 to RM20.17, or 44%. A consignment of 1,000 pieces of bricks now costs RM200 against RM140 before, up 43%.

The price of a cubic metre of G25 ready-mixed concrete went up from RM140 to RM191.20, up 37%, and that of G30 ready-mixed concrete was up from RM147.67 to RM201.17, up 36%. The 13mm thick waterproof plywood costs RM49.90 per sheet, up from RM44.50, or 12%.

The only item that has seen a drop in price is the 10mm-40mm diameter granite aggregate, which sells for RM23 per metric tonne, down RM1 from the 2005 price, or a decrease of 4%.

As stated earlier, the cost of land does make up a substantial portion of the cost of a project. Changes in the price of land, on the other hand, vary from place to place. Price increases are usually more substantial in the larger urban centres than in small towns.

With every new project, the demands of buyers also change.

Changing tastes call for changes in designs. Aesthetics are becoming more important, new demands to meet environmental requirements and concerns can result in higher costs. Added to that is the cost of labour and equipment, which is also on an uptrend. Given this scenario, the only way a developer can set itself apart from the rest is to be more innovative in its designs, ensure high quality and offer excellent after sales service.

That, understandably, also comes at a cost. But that's another story.

Teh Lip Kim is the MD of SDB Properties Sdn Bhd, a lifestyle property company. Bouquets and brickbats are welcomed. Send by email to md@sdb.com.my


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The Star Online > Business
Saturday June 18, 2011

Appetite for houses unabated

COMMENT
By THEAN LEE CHENG

Strong demand continues to push up already high prices, especially landed properties.

Future generations will have to get used to living in a box in the sky.

The past six months have seen a deluge of property advertisements in the Friday, Saturday and Sunday newspaper issues. There are eager buyers out there, still.

And this interest will probably continue until the end of this year, notwithstanding the growing worries in Europe and the US and the bubble-like scenario in China and Hong Kong.

When it comes to property investment, a buyer's first option will always be for landed units.

But as a former head of mortgage of a local bank lamented, of late, launches of landed properties have been few and far between. They are either very pricey or out of the way from the mainstream city life (or both). But despite the issue of price and location, landed units continue to be popular.

In April, the KL Kepong group launched the first phase of Bandar Seri Coalfields in Sungai Buloh, Selangor. About 40 units of 22 ft by 75 ft and 72 units of 24 ft by 75 ft double-storey housing priced from RM308,000 and RM348,000 respectively were put on sale. A total of 112 units were released into the market.

It was so popular that the remaining 107 and 56 units of the respective sizes were soon put up for sale at increased prices starting from RM328,000 and RM368,000 respectively, representing an increase of 6.5% and 5.7%.

Altogether, a total of 340 units were launched on two separate occasions in the first phase sale of this new township.

Over in Setia Alam, Shah Alam, one of Malaysia's largest developers, SP Setia Bhd, launched double storey cluster housing (30 ft by 55 ft) last Saturday, priced from RM568,000. A ballot was organised for the 116 units. Over in Klang, IOI Properties sold about half of its 128 units of freehold two-storey terrace houses in Bandar Puteri, Klang priced from RM468,800. This project was launched in April. The unsold ones are located close to the highway or junctions. Over in Desa ParkCity, despite a price tag of RM2.8mil, The Mansions by Perdana ParkCity Sdn Bhd proved to be highly popular. A ballot was also organised for this.

Although they were sold as terraced link houses, they were not of the same category as those launched in Sg Buloh and Shah Alam, as the ParkCity offerings have built-ups averaging from 5,000 to 6,000 sq ft. They have the space of semi-detached houses although they were sold as linked terrace housing located in a niche housing development.

A single feature linked all the above four launches; they are landed units and other than the Klang project, they were all sold in a jiffy, despite the high price tag and the fact that some of these properties are located in Sg Buloh.

When it comes to the sale of landed units, the strategy taken by developers today is different from that used several years ago.

Today, a small number of units are released, which gives the developer the opportunity to increase prices if the demand is good. Gone are the days when developers of townships launch 800 units of landed houses at one go with a single price structure.

KL Kepong's Bandar Seri Coalfields is a township of about 1,000 acres. This will take years to complete. SP Setia's Setia Alam is also a township of considerable size.

Over at ParkCity, at less than 500 acres, it is not a township but a small community that will have a population of about 7,000 in the future. However, other than using a different strategy in order to have better profit margins on the part of developer, there is also the need to look at quality as cost of construction increases. Buyers will have to look out for that.

There are a lot of things which house buyers do not see when they view a dressed-up' show unit.

These include the wiring, plumbing and what's inside the plastered walls. Because of the buoyant demand today, there is the temptation to cut corners on the part of the developers as they go for better profit margins. However, there are also developers, who, having made their name and created a brand, will provide quality, which they charge buyers for and this is fair.

From a consumer's point of view, it is better to be charged for a product or service of quality, than to have to pay for the lack of it later.

Once the price for landed units goes beyond the means of most, buyers will then consider high rise condominium units. Already, we are seeing quite a few very high end, high rise condominiums being promoted today. In Taman Tun Dr Ismail, Kuala Lumpur, a project will be launched soon, where a 1,500 sq ft box in the sky is expected to cost RM1.9mil; fully-furnished right down to the built-in microwave.

While all of us have seen the prices of landed units surge in the last 18 months, the time may have come for us to see prices go up for high rise condominium projects too.

A condominium project, with units averaging 2000 sq ft in Segambut Dalam, with high-tension cables splicing across half of the project and the NKVE at one end, were quicky sold at a price averaging half a million ringgit. The finishing and the sanitary and plumbing system were not of a high quality either and little can be said about the location.

Just because of the sharp demand for properties and as landed units in the Klang Valley become scarce, it is hoped that the quality of construction and materials used will not be compromised, both for landed and high rise residencies; especially, when the residency comes in a box in the sky.

Assistant news editor Thean Lee Cheng believes that quality workmanship and after-sales service are crucial if the property sector is to set new benchmarks.


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if u want to play safe, just buy prop near KL centre.

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Added on June 18, 2011, 11:15 amrising costs - yes, cost to renovate land prop also has increase 100%, i used to pay 50k but now 100k for almost the same features. further more it is now more difficult to find contractors willing to do your job many experience indon workers has return to indonesia for better prospects.

This post has been edited by lucerne: Jun 18 2011, 11:15 AM

this not need to worry.. they r still many willing to do the renovation... many ppl out there still need the job... not neccessary hv to hire contractors except u wanted to rebuild from almost zero... that is different already..

interesting, can you share your success story? e.g. how much you bought the property, how much you paid, how much you earn? well we are all behind the nickname, don't think so ppl will rob u

i'm interested as well

it already started, just had a discussion with 1 of the leading furniture shop, their outlet sales are dropping month by month & some of their outlets are in the red already

dunno want to happy or not

looking forward to see the speculation come to a stop then bubble burst

one needs understand China Socio-economic situation to explain this..
the skyrocketed housing prices in China could be attributed to their
1)one child policy [4 person = parents + parents in law total's money + bank mortgages to jack up the properties' price]

2)monetary policy doesn't work at all (China has the craziest underground finance market, tat's y recently RR(reserve requirement has raised to historically high standing at 21 or 22%, forgot exactly how many la, read it yesterday from BBC), China can't hike interest rate anymore, it could affect their export oriented economy, n well,higher interest rate attract more hot money flow in, it will build up the "pressure"of revaluation of RenMimBi, and US politician will find a good reason to attack again,)

3)the respective province Gov's GDP KPI (3 pillars of GDP, export led business- many die due to western weak demand, private consumption- rural areas where can boost, only leave Mega Project and Residential Projects,the only way to goreng this la to increase province Goverment's income..)

4)china gov highly recognize and ady implemented dozen of non-monetary policy to curb the skyrocketed housing price, 1 of it including invited singapore goverment to assist in their successful HDB implementation, and etc,etc....c how humble is China Gov ..they are too big but humble enough the learn the secret recipe of Singapore...

5)we ady could c "they are symptoms of social uneasiness and tensions" in China (but they are good in dealing this) and how a Jasmine revolution evolved from a "vegetable cart owner" to claim his cart back to feed his family of eight..

sigh..anyway..personally, i'm not socialist activist ..but Property shall be divided into 2 markets
1)HDB- pricing monopoly by gov..doing it as social responsibility..anyway human just wants a place to stay
2)2nd market for ppl to goreng, free market, u want how luxurious also tak ape..

*p.s. talking to my "Malay" colleague..
(bang, skrang kos beban tinggi oh, you anak berapa, kos beban tinggi kan?)
(tak ade la,jika lahir anak, kita ada "rezeki")

well..self-explantory...i don't have any rezeki...u can compare my weight n ur weight la..
i eat so little..n think so much...haha
u eat so many... n think little... lol

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Added on June 18, 2011, 4:54 pmwell... how i conclude there's a bubble..

if "money" suppose to channel into "productive business" to produce products, services to beneficial to people already start "leaving out" to channel into "property market"..

that's a start of building up of the storm of property's bubble..

simple: ur businesmen fren got say...sigh..nowadays difficult to do business 1 la..gross profit so little..hard to chase back the money..

i rather go goreng property la..dumb some money in, a while, cash some money out...

the above scenario do happens ady indicate a red flag to a healthy economic running...

any??pls share??

& any1 who interested "how vulnerable" it is for our Economy..
would like to invite u to c this
"http://dapmalaysia.org/newenglish/DAP_Budget_2010_en.pdf"

i'm nothing to do with politics, just coincidentally they have the economy report, hehe..save my research time n cost"
Enjoy.. n be prepared...

i'll be seeing Prime Minister this coming week in a Youth Corporate Malaysia event..any1 interested to go ar?
wish i have the guts to raise this in the Q&A sessions later but i knew i won't...hehe
so i hope the seniors can step out on behalf of this for the sake of younger generation...
their son n daughter maybe

This post has been edited by sunzi69: Jun 18 2011, 05:05 PM

[/quote]
any??pls share??

& any1 who interested "how vulnerable" it is for our Economy..
would like to invite u to c this
"http://dapmalaysia.org/newenglish/DAP_Budget_2010_en.pdf"

i'm nothing to do with politics, just coincidentally they have the economy report, hehe..save my research time n cost"
Enjoy.. n be prepared...

i'll be seeing Prime Minister this coming week in a Youth Corporate Malaysia event..any1 interested to go ar?
wish i have the guts to raise this in the Q&A sessions later...

[/quote]

@sunzi69
It's always interesting to read your post (assuming you are 25 yrs - if I remember correctly?) - really well-read for your age and I am impressed. I can sense your frustration and irritation in your posting but life goes on...

The hot property market has been a source of anxiety and frustration for many people and govt in the world, particularly in Asia and Australia in recent years. With regard to your suggestion of 2-tiered property markets - like what is in S'pore. I have worked/studied in a number of countries, I have to admit the housing programme (HDB) in S'pore is among the best, in my opinion. The positives of the HDB scheme are well-documented but there are some problems with it as well. With a 2-tiered market, there tend to be a more distinctive society stratification...HDB (lower-class) and private (upper-class). People can deny it, S'pore govt can deny it (but they know it) - the reality on the ground is that there is a social DIVIDE. There are some millionaires living in HDB flats but many more of those living in private ones are millionaires. The sad thing is that the society or a lot of people tend to associate material wealth with social status (probably because morality and other virtues cannot be physically seen and be compared). A number of countries are learning from S'pore on the HDB but the implementation part is DIFFICULT.

As for your comment on the Bubble...you see thread is already in V2 and after hundreds of pages...people are still shouting Bubble...yes, eventually they will be right. I think I have posted a couple of posts at beginning of this year and a few weeks ago on direction of property prices. You see property cycles are part and parcel of business/economic cycles (just like financial markets and etc.). Let me give you my two cents' worth perspective of the current M'sian property (I am trying my best here since I am not a property expert - I am more a finance person but own some properties as part of my portfolio allocation).

I am wondering from which year should I start from (too long ago - lack relevancy, too recent - lack reliability)...Ok - I will start from after the Asian currency crisis. From 1998/99 to around 2005/06, the property market was limping along...during that period, properties market was subdued even though economy was cruising along (bear in mind that the property price increase during that period was lower than GDP growth). The property market got its first structural break in March 2007 with RGPT removal announcement (market was already moving up in second half of 2006 with better equity markets + economy + rumour of RGPT removal). So, the market went up in 2007 and 1H2008 until Lehman crisis...everything cooled off...you see the UPTREND was not completed in 2007/08 but rather disrupted by the 2008/09 financial crisis. Subsequently, in the second half 2009 - the market began to come ALIVE again...this time with more FUEL than the previous uptrend in 2007, driven by Cheap mortgage rate, pent-up demand and higher construction costs (more in 2H2010). So from 2H2009 to now, the market has been up and UP away.

Personally, I feel the recent asking prices (especially for new launches) have gone "bonkers" but there were takers in some "highly-priced" projects. When I checked with the real estate "experts", their feel is that the prices will "level off" (but unlikely a big drop) for the time being. You see the property price increases have been most significant in Klang Valley and Penang...youngsters in these two areas are feeling the PINCH. It boils down to managing expectations...sorry to say that a graduate won't be able to afford a double-storey link house in PJ within five years of working (unlike their parents) but the reality is that land is really getting scarce in prime locations and young graduates have to settle for high-rise or landed in further away location.

You may wish to read the following article by Mr Khaw (ex-Penangite who is now S'pore MND Minister - in charge of housing matters in S'pore) talking on the housing situation in S'pore. I admire him for his sharpness and boldness to take the bull by the horns in Singapore housing problem... http://mndsingapore.wordpress.com/2011/06/09/my-worries/

As for your invitation, I definitely cannot qualify as a youth but I did meet the PM last Monday at the ETP update 6. We in the audience just shook (gently) our heads (and sigh inside) after hearing his update speech (nothing new at all). If you get a chance to ask him a question, just ask your MOST BURNING question but please be POLITE.

This post has been edited by chabalang: Jun 18 2011, 09:31 PM

There is thundering sound. It will rain soon.

Q2 confirm is a bad quarter ... I will wait and gamble for Q3 now ... haizzzz ...

What izzit bad for you?

I think the property is going bad soon......

For you, it's already going bad?

I don't think we can compare malaysia with singapore. Singapore is dense, where else malaysia still have a lot of places to develop. Yes property at CBD is getting higher, but is that sustainable? There are takers on the highly priced projects, are those investor or genuine buyers? how sustainable is it when these investor leave?

who MUST live in PJ/KL nowadays? Who doesn't have a car? How many actually living less than 10KM from their work place? chances are None. Would you drive 15mins more if you could get a similar property for 25% cheaper?

Just my 2cents

This post has been edited by Vincent Pang: Jun 18 2011, 10:36 PM

LOL, value investing@ buffet cannot buy property @@?
BTW, it is not me invest in property, it just my other family member.
you use common sense doesn't mean ppl use ..LOL. I didn't say you said market not gonna crash, but I just saw a lot of comment here said property price is gonna up and won't have downward risk.
Just a gentle remind to those who made a lot of money, don't think yourself too smart because in somehow you're ( I am not pointing you sulifeigreat) lucky especially those flipper. Including my family member felt so because he earned million from property but somehow he feeling himself too smart. LOL...
and a lot of investor loss their common sense when come to investing especially after they made a lot of money, SO PLEASE DON'T ASSUME EVERYONE will be rational when greed overcome your rationality ( smart doesn't mean rational)

There are many factors why property price increase. Building material is one of them, but you can still see that a double story terrace in Alor Star in Kedah is still half the price of a similar house in Klang Valley. Why? the cement , steel , bricks should still be about the same price. Land price is another factor, land in Kedah is cheaper than in Klang Valley. Another thing, its about demand. Klang Valley has much more attraction and ammenities than Kedah. The other thing which people don't talk about is the huge number of Malaysians working abroad. I read one estimate - 1 million workers (mostly Singapore,and others like Australia , UK). 1 million with high income is a big impact. I estimate there are probably 6 - 7 million income earners (30% of Malaysia population). And 1 million working abroad is a lot - about 15%. A lot of them don't really want to buy a property in Singapore. For the same amount of money - they can get something better. And they plan to retire in a nice house rather than a HDB flat in place where cost of living is still relatively "cheap". Why don't you ask around your neighbourhood and see how many actually belong to overseas Malaysians or ex-overseas Malaysians? I am not blaming these guys - I think its good that they have the courage to work overseas. I am just giving my opinion why property prices are high here.

sorry if this question had been asked before or I am too noob to ask this..
Will general election(after) had any indirect impact to property prices?? i mean will it drop because of that?

yr description is a simple way to put it but is correct, imo.
little agri produce, factory output stagnant, domestic inv and fdi dwindling,
counting on plam oil exports and still some crude production.
continued enlarging budget deficits, increasing household and gomen debt, continued capital and brain flight.
massive corruption, leakages and inefficiency.

skyrocketing prop prices... everyone will make money in the end? or some will pay dearly for it?
if this kind of economy works for long, there shouldn't be any poor nation on earth!

I think...as long as people are not unemployed, with increased jobs creation like impending big projects / developments backed by foreign investors. Days after days, even if minor correction would happen, people still need to eat, sleep and grow. i think what is not affordable today will be affordable tomorrow.