03 August 2014

‘Property prices to keep rising’

  03 August 2014


REAL Estate and Housing Developers Association (Rehda) president Datuk Seri FD Iskandar Mansor says property prices will continue to rise because of the supply and demand factor and high land cost.

According to National Property Information Centre, the average annual housing completion was 100,000 units against the average annual household formation of 140,000.

Iskandar, who is Glomac Bhd managing director and chief executive officer, said the public still have the misconception that developers are to blame for escalating property prices.

He said it is not possible for developers to reduce or maintain the selling price for new launches because of land cost, coupled with high conversion premium which has risen by up to 300 per cent recently.

“Glomac bought 80ha in 2009 in Puchong and paid almost RM15 million premium for conversion. In 2011, we bought an additional 80ha to expand the development and paid almost RM49 million,” Iskandar told Property Times.

On the cost of doing business, Iskandar said it has been increasing every year and developers are not enjoying the 30 per cent profit margin like before.

According to him, developers make around 15 per cent profit margin now because of high compliance cost, development and infrastructure charges, quit rent and stamp duty.

“Some 20 years ago, when we develop a piece of land, water and electricity is supplied to the area. All we need to do is connect the supply to the development. Today, we have to get water and electricity from the main source and this is costing us more.”

He said for landed properties, utility cost in terms of gross development cost (GDC) has risen by five per cent to 19 per cent in the past two years.

For strata title properties, the cost has increased by six per cent, and or townships, between nine and 25 per cent.

“The public should not blame developers for the increase in house prices.

Utility companies are making money from both consumers and developers.”

Iskandar said Rehda has been engaging with the government and companies like Tenaga Nasional Bhd, Telekom Malaysia and Indah Water Konsortium Sdn Bhd, among others, to find ways to resolve the matter.

He also said land is also getting scarce and more expensive.

“In early 2007, when Glomac bought land nearby the Petronas Twin Towers, the seller asked for RM1,000 per square feet (psf) but we wanted to pay only RM600 psf. I knew what we wanted to build on it so we paid RM1,000 psf.

“A few research houses downgraded Glomac because of that. Now, that same piece of land is worth RM3,500 psf and the value of the building has risen. Land cost has tripled in the last seven years.”

Iskandar said there are many issues that need resolving soon in the local property market, which is one of the pillars of growth for Malaysia.

“We are in an industry which is highly regulated. We are governed by three different authorities, namely the state government, the Federal Government and the local authorities. If we don’t comply, we won’t be able to get development approvals.

“Rehda has around 1,200 members, who directly and indirectly employ close to one million people. Last year, total loans given to the real estate industry was 40 per cent. It was the highest on record.

“In terms of compliance cost, the contribution to the local authorities is between four per cent and 18 per cent for landed properties, around five per cent for strata title properties, and as much as 20 per cent for townships.

“If we keep having issues such as rising cost of doing business, delays in approvals and more cooling measures, the sector will become stagnant,” Iskandar added.

~ By BUSINESS TIMES


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