Rise in prices a concern

PETALING JAYA: Steel prices have been on an uptrend, along with other raw material prices and this has put pressure on the construction and property developers.

The construction and property development industry relies heavily on materials such as steel, aluminium and copper to build their projects, whether property or infrastructure.

According to industry players, these costs account for about half of the total costs for a typical property project.

Main Market-listed construction company Kerjaya Prospek Group Bhd’s chairman Datuk Tee Eng Ho said that prices of raw materials such as steel had shot up recently.

“Every company’s profit margins will be affected. For a construction contractor such as Kerjaya Prospek we have to tender new projects at a higher price of between 10% and 15% higher.

“Prices have gone up for not only steel bars, but other raw materials as well. As for the older construction contracts that have been signed at lower prices, we have to carry it out and we can’t do anything about this. We will see some reduction in margins for the old jobs,” Tee told StarBiz.

Tee is also the executive chairman at another property developer – Eastern & Oriental Bhd. Kerjaya Prospek is also involved in property development.

As for the property development side, Tee said newer projects will have to reflect these new pricing structures due to the new cost structure involved.

“For newer property projects, it will have to be based on the new pricing. Very soon this too, will have to rise,” he said.

The Real Estate and Housing Developers’ Association of Malaysia’s (Rehda) acting president Datuk N.K. Tong said that raw material costs have gone up “across the board”.

“In the recent first half 2022 survey on developers, you can see construction costs going up a lot in the past two years. Definitely, there will be an impact on margins. All of these building materials require energy (or fuel and oil) to produce. The question is how fast and to what extent,” he said.

According to Rehda, the survey among property developers revealed that building materials have risen for all materials used in a typical construction and property project: aluminium rised 55%, timber 52%, steel 38%, cement 19%, sand 18% and concrete 16%.

Commenting on this matter, property developer IOI Properties Group Bhd’s chief operating officer Teh Chin Guan said that the rise in raw material prices is a big concern for property developers.

“The rise in raw material costs for all construction materials have broken past recent price records. Other than that, we have issues with the recruitment of labour now as there is an acute labour shortage in the country and this is a very serious issue.”

Teh said while wages have more than doubled now, he emphasised that it is still very difficult to find blue collar workers.

“Price hikes are seen in logistics and transportation as well. The rise in construction costs is becoming very difficult for us to manage now. The labour issues with the rise in raw materials, have seen our total construction costs rising by a net 20% now from about a year ago.”

Teh explained that the quantum of increase for net costs could even rise by more than 20% for some projects, depending on the amount of steel used in a particular project.

Teh said the company is in a difficult situation as it is unable to pass these costs on to the consumer as property affordability is still a prominent issue now.

“We can’t do this already, due to issues with affordability. It is still an issue after many years.

“It could get worse, as, after the pandemic, people would have lost their jobs and some may have experienced salary cuts as well.