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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© 1995-2011 Star Publications (Malaysia) Bhd (Co No 10894-D)
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May 11 2011, 10:18 PM
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) already start to sell early of this year......they are foresee that property transaction will be slow & stagnant + minor adjustment for upcoming year....they dun want their money tied with property for couple of year till another hike of the price, they cash out the money to invest another tools in the market. 
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