Better outlook for property players’ margins

PETALING JAYA: The outlook on margins for property players is becoming more favourable given that prices of key raw materials appear to be on a down trend.

The price of steel bars for instance has dropped by about 10% from its recent high of RM3,700 per tonne while oil, which is a major cost component for most businesses, has come off more than 20% from its high of US$147 per barrel in July.

Mah Sing Group Bhd managing director Datuk Seri Leong Hoy Kum said as a rule of thumb, a 10% reduction in raw material costs improved margins by about 2% to 4%, depending on product type.

“The outlook (on margins) will be more promising if prices continue to stabilise in the next six months,” he told StarBiz.

However, uncertainties in the market remain and property players are employing various strategies to safeguard against potential risks.

In a report, AmResearch noted that risk appetite among subcontractors “appeared to be on the mend” as larger developers had incorporated cost escalation clauses into their contracts.

As for strategies, the research house said some developers were not calling for tenders presently and not buying raw materials in a large way. It felt that developers would rather postpone launches than cut prices, given the current scenario.

“This is in view of higher costs compared with last year and their strong balance sheets that allow them to hold on,” it said

It noted Sunrise Bhd’s five-star KM28 project, Selangor Properties Bhd’s Jalan Batai project and IJM Land Bhd’s The Light project which had received most of the necessary regulatory approvals but were being put on hold until a more “opportunistic” time to launch.

While sales in the mass market had been slower, it had not “collapsed”, AmResearch said, adding that if demand “successfully” picked up by year-end, renewed interest would be ignited in the property sector.

“We have locked in construction costs and built ahead of schedule for our developments of Kemuning Residence, Aman Perdana and Sierra Perdana,” Mah Sing’s Leong said.

He said Mah Sing was one of the few developers that continued launching its products despite uncertain times.

“Nonetheless, it is a challenging market and developers have to work doubly hard,” he said.

By The Star - StarBiz