Property prices may go up by 10% on higher costs, say developers

KUALA LUMPUR: Property prices could see an increase of up to 10% this year due to rising costs incurred by developers, according to Andaman Group managing director Datuk Seri Vincent Tiew.

After a press conference on the Property Outlook Conference (POC) 2014 yesterday, he told The Edge Financial Daily that these costs could push up the total net cost for a developer by 5% to 8%, and as a result property prices could go up by about 5% to 10%.

He said it is likely most of the contributing costs — including labour, utilities, raw materials and toll charges — will be passed on to consumers.

“All of these will increase construction costs directly and indirectly for the developers ... No property developer would want to absorb the costs,” he said.

Nonetheless, Tiew said the bigger culprit in the slowdown in buying sentiment in properties will be the more stringent lending rules, and not the hikes in the real property gains tax (RPGT) or utility tariffs.

It is worth noting that in July last year, Bank Negara Malaysia (BNM) capped the duration for personal loans at 10 years and home loans at 35 years. This compares with the previous maximum of 25 years for personal and 45 years for home loans.

“[The RPGT hike] will simply become an investment consolidation strategy. Those who can afford it will become more cautious in buying … But they will continue to invest,” he said.

The new RPGT regime is expected to include a 30% tax rate on property disposed within three years of acquisition, 20% for property sold within four years and a 15% rate for property disposed of after five years.

Tiew said, “For example, if developers used to be able to finish selling a project in three months, they now need to be prepared financially and mentally that the project might require nine months to be fully taken up.”

He said as developers will be more prudent in rolling out projects against the backdrop of a stricter credit environment; there will be fewer property launches in 2014.

Certified professional trainer Renesial Leong, meanwhile, pointed out that rising prices are a global phenomenon.

“Inflation is something we live with ... By 2020, the government intends to taper off subsidies, which means we will see several rounds of price hikes,” he said.

Nonetheless, Leong said property investment is still the best hedge against inflation. He said a return of between 5% and 7% on commercial lots would still be possible.

“Depending on the area, we will see reasonable growth in rental rates but not across the board, similarly in occupancy rates as well.”

Leong said there are areas that have been experiencing an oversupply of office space, but there is still strong demand in other areas.

Axis REIT Managers Bhd chief executive officer and executive director Datuk George Stewart LaBrooy said Iskandar Malaysia in Johor is expected to welcome more Chinese investors.

He also highlighted that Malaysia is the only Asean country that allows foreigners to purchase freehold land.

Apart from Tiew,  Leong and LaBrooy, the panel of speakers for the event includes property guru Milan Doshi and Malaysia Property Inc general manager Veena Loh. POC 2014 is organised by Wealth Mastery Academy and will be held on Jan 11 and 12 at Hotel Istana Kuala Lumpur. — by Charlotte Chong

This article first appeared in The Edge Financial Daily, on January 3, 2014.


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