Pressure from rising cost of building materials and labour

KUALA LUMPUR: Last year the high-cost pressure on the real estate and property development industry in terms of the increase in building materials and labour costs have affected project cashflow planning, and interim unplanned stop work measures due to Covid-19 related issues, have disrupted project scheduling.

According to Rehda Institute chairman Jeffrey Ng Tiong Lip (pix), the increase in material costs have directly impacted the cost of doing business which has resulted in a 13% to 20% hike in construction costs.

“For instance, mild steel price increased 41% and sand has increased up to 20% since October 2020. All these factors accumulatively distort the costs of construction.

“The real estate and property development market is already in a cost-push inflation situation. Further costs increase cannot be absorbed by the market as property prices were fixed beforehand,“ said Ng in the keynote address of the Rehda Institute CEO Series 2022 Annual Property Developers Conference.

Ng said there would be no room for further price increase as margins are squeezed. He said government intervention would be necessary to ease the cost pressure on the real estate and property development industry to ensure that house prices remain stable.

He said the government could improve easier access to purchase properties for homebuyers with better and more liberal access to property financing as well as lowering or minimising property acquisition costs for them.

“Higher financing to specific targeted market segments, for example, 100% loan for property priced at RM500,000 and below for younger homebuyers below the age of 35. These measures will assist homeownership access among younger generation of Malaysians who may otherwise not be able to save enough for down payments. For instance, after a period of five years, such properties may have appreciated between 80% to 90% of market value from the original price of RM500,000.

“Lowering initial acquisition costs in the form of downpayments for homebuyers to be made directly from their EPF Account Two, instead of based on later reimbursements. However, for new houses in the primary market, this may require additional enabling provisions in the standard sale and purchase agreements (SPA). An additional manner in which initial acquisition costs can be lowered could be in the form of stamp duty waivers for SPA, transfers and loan-related instruments,“ he said.

He said the Malaysia My Second Home (MM2H) Scheme could be strengthened and expanded to create new demand to enhance market absorption.

“There are economic multiplier impacts from domestic spending in Malaysia by creating new external demand for housing accommodation for higher-end segments of real estate, among others, enrollment in international schools, higher demand for goods and services produced by Malaysian businesses.

“An expansion of MM2H could include international business migration to attract more business talents to participate in domestic economy than a pure retirement programme. For example, Thailand announced recently that residence visas similar to MM2H will be issued to eligible foreigners except that they are allowed to work and do business in Thailand, which is a faster capital inflow to a country.

“A more foreign-friendly policy in terms of encouraging international foreign investments in Malaysian properties would improve market absorption, especially for higher-end properties in Malaysia, which does not compete with the mass housing market catered for the majority of Malaysians,“ he said.

Meanwhile, economist and former Bank Negara Malaysia deputy governor Tan Sri Dr Lin See-Yan said rising house prices denote that rents may start to rise and housing may become unaffordable to the low-income population.

MahSing Group Bhd Group CEO Ho Hon Sang said Rehda had proposed to the government to extend the Home Ownership Campaign (HOC) campaign until the end of this year to support potential home buyers amid historically low mortgage rate due to dampening homebuyers’ sentiment caused by the rising cost of living and the end of HOC on Dec 31, 2021.

On shortage of workers delaying the completion of housing projects, Ho said the issue could be addressed by the government with a shorter approval time so workers can come in as soon as possible.

“It is the most practical way to address the issue. According to Master Builders Association Malaysia, there is a shortage of 200,000 workers in the construction industry,“ he told Sunbiz.