Property prices up due to GST? Developers should just absorb it.

In an online news portal, it was reported that The Royal Institute of Surveyors Malaysia (RISM) would be conducting a study on reasons as to why property price increases and provide recommendations on remedy by end of 2014. I think RISM can also talk to HBA, REHDA, MIEA etc and everyone would more or less have DIFFERENT ideas about why house prices have been increasing. Of course, I would still love to hear what RISM’s final recommendations would be. Would they recommend how to reduce how prices? Well, highly unlikely. Prices, once risen would find it hard to go down, except for another round of crisis which most probably has to start in the property markets of the developed countries.
Shareda’s President, Goh said that property developers do not normally earn 20% and said that 20% is indeed a very reasonable one. Any developer who is able to earn more than 20% would be laughing all the way to the bank. The reason for this is due to the long process from day one till completion. Typically this may take up to 6 years for a developer starting from acquisition of land till the completion of the intended project. I do not think it takes up to 6 years for a seasoned developer, especially those with already existing land bank. However, 6 years is okay as a typical benchmark.
In terms of the 20% profit, based on listed property developers, what he said is quite accurate. Read here:  Developers and their profit margins, recent updates, Sept 2014. However, this profit margin is really dependent on the type of property, the developer’s ability and all the other costs during the construction stage. If the developer has owned the land for a long time, it is likely that the cost is much lower compared to a developer who bought land for development recently.
Another thing that I must highlight is something I spoke about recently. With the implementation of GST next year, the potential one time increase of between 2.6% to 4% should be absorbed by the developers. Shareda’s president Goh validated this when he urged Shareda’s members to absorb this small increase. Whether the members absorb or not actually would depend also on the market direction next year. If transactions continue to be so slow, I think the absorption alone may be not sufficient to move the market. A further reduction may be necessary or perhaps the relaxing of some cooling measures. 🙂
written on 31 Oct 2014
Next suggested article: Double storey terrace in Kota Kinabalu outskirt is now RM450,000