City & Country: House price growth slows this year

THE growth in residential property prices has slowed this year, reined in by the government’s cooling measures, say property industry players. However, prices are expected to pick up as costs continue to rise, and the impact of certain drivers such as the impending implementation of the Goods and Services Tax (GST).
At this year’s The Edge Investment Forum on Real Estate, panellists — The Real Estate and Housing Developers’ Association president Datuk Seri Michael Yam, Sunway Bhd joint managing director Ong Pang Yen and Master Builders Association Malaysia immediate past president Kwan Foh Kwai — will weigh in on the topic “Homes to cost less — is it possible?” and their views should interest homebuyers and investors.

“House price growth in the latter part of 2013 and the first quarter of 2014 have been rather flat since the implementation of the cooling measures announced in Budget 2014,” says Yam.

“There is still sales take-up, albeit at a slower pace, and prices have not dropped. But the rate of increase in prices has definitely slowed. Also, it takes more time to hit the targeted sales as banks are more stringent with lending while more borrowers are failing to get loans. The wait-and-see attitude of prospective buyers has also contributed to the slower sales.”
He expects house prices to continue growing at a slower pace, but does not believe prices will come down as the major components that contribute to the eventual selling price — namely land price, labour cost, material and input costs, compliance cost, interest charges and profit margin — will continue to rise.

“The primary reason for the increase in home prices is cost push. Not only has raw land for real estate development escalated in price due to the scarcity of supply, but labour and material costs for construction have also spiked due to manpower shortage and increase in material costs. Due to the local authorities imposing higher standards of compliance and requiring the surrender of more land for various amenities, and utility companies levying higher fees and charges, this has resulted in higher cost of delivery as developers have to pass on such increase [in costs] to consumers.

Ong says house prices can go down if land prices and other input costs also drop

“However, as developers are not in the business to be in a loss-making position, they will either delay launches or pace their sales according to demand. As demand outstrips supply and as April 1, 2015, approaches, the realisation that the GST will be implemented will see more interest from buyers, committing to buy in the second half of 2014 and first half of 2015,” says Yam.
He adds that this will be more apparent in “land-starved” parts of the Klang Valley and Penang island, but not as evident in Johor where land and the pipeline of supply is still plentiful.

Sunway’s Ong reckons that house prices can go down if land prices and other input costs also drop.

“Input costs, such as land, materials and labour costs, have always been on an uptrend. Innovation, integration, less wastage and better efficiencies can improve the cost-effectiveness of properties.”

He opines that the price of properties in the primary market is likely to rise due to increasing costs. “It is always a good time to buy if the fundamentals are right — good location, good infrastructure, and good developer with sound track record in creating value and capital appreciation for its purchasers.”

Yam expects house prices to continue growing at a slower pace

Meanwhile, Kwan says construction costs have gradually risen over the past decade due to cost-push factors.

“This year, costs will rise due to the increase in the electricity tariff and minimum wages, and the implementation of the GST next year. The immediate impact being felt now is from [the increase in price of] building materials such as cement and sand.”

However, he notes that Kuala Lumpur still has the lowest cost for property development in the region. “To me, other factors such as land price, location and an imbalance between supply and demand are bigger factors contributing to the rapid increase in house prices.”

The panel looks to provide a greater insight into the issue of homes that cost less. The panel discussion will be moderated by The Edge Malaysia managing director Au Foong Yee. The Edge Investment Forum on Real Estate 2014, themed “Buy, Hold or Sell?”, will be held at The Royale Chulan Damansara in Mutiara Damansara, Selangor, on April 19. Registration begins at 8.15am.


This article first appeared in The Edge Malaysia Weekly, on April 14, 2014.