Increase in material cost

The recent increase of prices of building material are being published and discussed in many articles in the newspapers as well as online news portals. The extent of increase in price is reported to have caused more than 30% increase in cost of construction. Prices of items like steel bar and cement have increased the most and others to a lesser extent.

Some developers have announced that prices of new launch will see an increase of 25% to 30%. Let us see objectively if the proposed increase is justifiable.

The selling price of a property is computed with of the followings:-

1. Cost of construction
2. Professional fees
3. Finance charges
4. Authorities processing fees & contribution
5. Office overhead
6. Land cost
7. Profit margin

Out of the above list of cost, two items namely cost of construction and land cost constitute the major portion of the selling price.

Cost of construction forms about 40% or higher percentage of the selling price depending on the location of development. In city area where land cost is high, cost of construction constitute a smaller portion of selling price. In rural area where land cost is low, construction cost form the major part of the selling price.

Assuming if the construction cost constitute about 40% of the overall development cost, then an increase of 30% in cost of construction will only result in approximately 12% (0.4 x 30%) increase in the selling price if the developer were to maintain the profit margin in absolute dollars and cents, however if the developer would want to maintain the margin in term of percentage of the cost, then the resulting increase would be higher than 12%. In any case there would not be a corresponding increase of 30% in selling price just because the price of construction has increased by 30% as the cost construction is only a part of the overall selling price.

In fact, the price of properties in prime area has been increasing at much faster pace even before the recent huge hike in material price due to increased demand from investors hoping to sell later at higher price.

Those who have bought properties before the recent hike in material price may be pretty happy now that the price of property in good location will see good support because even if there are new launches in the same area, the price will not likely to be cheaper because the cost of construction has gone up and there are no indication at the moment that the price of material will soften.

Price increase

The recent hike in petrol price has resulted in the increase in transport charges as announced by the transporters, building material prices are set to rise too as the result of the hike in transport charges. The hike in transport charges mean prices of food stuff will also rise. But with the electric tariff hike on 1st July, there will be another round of price hike and as the result of all these factors, ordinary guys on the street will have less money in their pocket to spend. This will mean less demand for real estate and property which mean the developers will find it difficult to pass on the cost to the consumer even though the cost of construction has gone up.

The cost of construction has been widely reported to have risen by about 30%, does it mean that price of house will increase. I would believe so as the increase in material cost has resulted in lower margin for the developer. Except for those who specialise in high end properties where the margin is extremely good, any increase in material cost mean lower profit but for those who work on tight margin, the recent increase in material cost will render the project not viable.

As a result of increase in construction cost, developer will have no choice but to increase the selling price of the properties but how would the sale be affected by the price increase is anyone guess. With the uncertainty in the material cost coupled with less disposal income of general public, it would be difficult for developer to strike a balance maintaining reasonable profit and maintaining the affordability of the property. Many are adopting a wait and see attitude and delaying their new launches.

Viewing the scenario positively, with less new launching ahead, many of the unsold units will be taken up and this is healthy for the overall real estate sector and when this is all done, you can expect the price of property to shoot up.

Malaysia represents good market for foreign investment

Read the article.

Property company no longer need to have 500 acres land bank for listing

The SC, in a series of liberalisation measures announced recently to attract more local and foreign firms to list on Bursa Malaysia, has allowed private developers to be listed on the exchange without fulfilling the minimum 500-acre (20ha) landbank requirement. Read further .

Malaysia to get new tallest building

Malaysia looks set to get a new tallest building after Kuwait Finance House Malaysia Bhd (KFHMB) revealed plans to construct a tower that will overshadow every other man-made structure in the Asian country. Read further.

Internet advertising vs newspaper advertising of real estates

Internet advertising of real estate and property is getting very popular these days as evident by the number of real estate web sites that have gone online in the cyberspace. Many of the web sites offer free listing while some charge for their service. In general, users are still able to find quality real estate web sites that offer free listing.

There are many advantages that are associated with internet advertising of real estate, internet advertising is mostly free as real estate seller can list in multiple web sites for free, and this is a big contrast as compared with the conventional newspaper advertising where they charge you by the day and by the size of your advertising space. With internet advertising, sellers can practically advertise for free and repost their listing upon expiry until such time that their property is sold. In newspaper classifieds, to increase the chance of the listing being noticed by house buyer, house seller would need to advertise more than once as potential buyer may not read their advertisement on the day the advertisement is posted. The longer they post their advertisement, the more they would have to pay.

Internet advertising of real estate is instant, many of the real estate web sites instantly display the advertisement upon submission, seller need not wait for the next day for the advertisement to be published like in the case of local newspaper classifieds.

Internet advertising offer greater exposure as sellers can list their property in as many web sites as they like whole year long and the listing is not limited to the country where the seller stays, in fact, as soon as the advertisement goes online, it will be indexed by search engines and become searchable by people from all over the world. The property listings over the internet is in fact having a so called ‘global presence’.

Another advantage of internet advertising is that it makes it very easy for buyer to search and notice the property that fit his or her requirement. Many of the web sites offer advance search feature that allow the buyer to search with certain criteria such as location, type of property, price range etc so that buyer only look that those advertisement that fit his or her criteria, basically filter out all irrelevant advertisement, making it easier for buyer to get their choice property with minimum effort and time. This is also a sharp contrast as compared with newspaper classifieds where buyer will have to sieve through more than ten pages of classifieds which consist of minute print, with newspaper classifieds, buyer will have to do the filtering and sorting themselves. As the content of internet are indexed by various search engine such as Google, Yahoo, MSN etc daily, the listings uploaded by sellers become searchable not only by search feature of the particular real estate web site but by search engines in general.

One more advantage of internet advertising is that sellers are able to upload photo of their property so that potential buyer can have an an idea what the property look like, most real estate web sites allow up to five photographs upload. To display five photographs on newspaper classifieds would have cost the seller considerable amount of money.

So, real estate listings on the internet do seem to offer a lot of convenience and advantages. However, internet or newspaper is really a matter of personal choice too.

To advertise your real estate for free, you may want to visit our real estate listing web sites http://www.realestate2u.com.my/ , malaysia.realestate2u.info or classifieds.realestate2u.net , we do not charge for listing, isn’t this the best part of internet advertising, it can be done at almost zero cost except for the internet connection which is anyway needed for other purposes.

Condo or house, which is better in term of investment ?

If you ever ponder whether a house or a condo is a better form of investment, then read this article from The Edge Daily.

Malaysia property-buying process ’simpler than eastern Europe’

It was reported that Malaysia property-buying process is ’simpler than eastern Europe’, read further.

Penang STAR property fair

Visited the property fair today and before we talk about the real properties, there are quite a number of scaled down models of the proposed properties that were on display by the various developers.

The Paragon by Hunza Properties Bhd:

Penang Time Square by Ivory Properties Group:

Platino by IJM:

Property sector get another boost with budget 2008

1. EPF contributors can make monthly withdrawal from account II to settle housing loan.
2. 50% reduction in stamp duty for those buying a property not exceeding RM250,000-00
3. The government has allocated a fund to provide guarantees to the banks to help those in the low income group to obtain housing loan.

Things to note when buying highrise condo

Things to note when buying highrise condo - Part I

Things to note when buying highrise condo - Part II

Things to note when buying highrise condo - Part III

Things to note when buying highrise condo - Part IV

Things to note when buying highrise condo - Part V

Things to note when buying highrise condo - Part VI

Things to note when buying highrise condo - Part VII