PRICES of building materials began to rise in late 2020, just as Covid-19 vaccines were approved and ready for human use, which signalled the reopening of the economy.
From January to August last year, the cost index for building materials had increased by as much as 19% on the anticipated recovery of the economy and rising global market prices.
These price increases had created a domino effect by significantly increasing the value of contracts in the property development industry by 10% to 20%, while some projects needed to be re-tendered.
“If the cost of building materials is still not stabilised, we will expect higher cost from future tenders, as contractors/suppliers of future tenders may add to their costs as a risk factor to accommodate the major price fluctuations. This will affect our profitability,’’ said UEM Sunrise CEO Sufian Abdullah.
UEM Sunrise is revamping its entire procurement strategy to mitigate cost fluctuations, working with its service providers and contractors to mitigate the risk of cost increases.
“If the cost of building materials is still not stabilised, we will expect higher cost from future tenders, as contractors/suppliers of future tenders may add to their costs as a risk factor to accommodate the major price fluctuations. This will affect our profitability,’’ said UEM Sunrise CEO Sufian Abdullah.
Allowing deeper involvement of vendors at an early stage would not only provide greater equity across the value chain, but also reduce the uncertainty in the project cost structure.
Tools such as Building Information Modelling (BIM) will allow property developers to plan and visualise the entire project during pre-construction.
BIM also allows UEM Sunrise to standardise its designs and specifications across the same product price category.“This enables UEM Sunrise to design and subsequently construct its projects more quickly, efficiently and sustainably, without compromising on quality, while saving time and costs,’’ added Sufian.
UEM Sunrise is working to create a more comprehensive common data environment to ensure a robust information baseline that will be utilised both internally and externally by its designers, engineers and contractors.
“We have already started building a comprehensive database of cost data and at the same time, tweaking our design approach to minimise waste on site,’’ added Sufian.
The current rising costs of building materials may not have a major impact on Mah Sing Group Bhd, as its construction contracts for ongoing projects had been awarded on a lump sum basis at a fixed cost.
“We will carefully monitor the situation as we do have new contracts to award due to our active land acquisition and project launches,’’ said Mah Sing CEO Datuk Ho Hon Sang.
At the same time, Mah Sing keeps open its communication channels with its panel of contractors to explore the best way to value engineer while maintaining safety and quality of work.
Being a prompt paymaster, Mah Sing has a good relationship with its panel of contractors who will remain competitive in contract bid prices.
The Mah Sing Group has implemented several mitigating steps that can help in accelerating the progress of projects amid rising process of raw materials.
“We will carefully monitor the situation as we do have new contracts to award due to our active land acquisition and project launches,’’ said Mah Sing CEO Datuk Ho Hon Sang.
> Establish an efficient project management; Mah Sing has learned that bringing project teams together sooner than later significantly improves time-to-revenue. When employees and contractors collaborate early in the process, time consuming redesigns or other amendments can be avoided. Mah Sing also has cross-functional teams capable of quickly adapting to any crisis or situation.
> Procure materials well in advance; Mah Sing believes that buying materials in a timely manner can help with cost savings and mitigation of problems such as shortages and ensure access to materials, when needed. Mah Sing buys materials in bulk at a substantially lower cost to meet its demand for current and future projects in the pipeline.
> Manage contracts and partner with contractors; through collaborations in the past, the group has followed a strict and rigorous financial management policy, ensuring prompt payment and consistency in contract awards.
> Exploring innovative engineering methods; Mah Sing has started using a new and advanced construction technique that can withstand future cost hikes.
“Whether in management or project execution, the group is constantly evolving in a modern environment to foster an innovative mindset,’’ added Ho.
It is essential to monitor the rising cost of construction materials, higher demand in the construction industry will be directly followed by demand for materials.
“However, we ensure that material costs do not compromise the quality and design of our products,’’ said Sime Darby Property Bhd group managing director Datuk Azmir Merican.
Sime Darby Property Bhd actively seeks alternative materials to ease the pressure on margins, as well as cope with rising material prices.
Sime Darby Property also looks into standardisation of designs and material specifications to reduce and mitigate the impact of material escalation.
By implementing technologies and design processes including BIM and construction material software, Sime Darby Property can increase the efficiencies of its construction progress and reduce costs at the same time.
The rise in prices of building materials has impacted all property developers in Malaysia and around the world.
While striving to avoid consumer price hikes, they comb for all ways internally to control costs and manage their projects more efficiently and in a more innovative way.
Yap Leng Kuen is a former StarBiz editor. The views expressed here are the writer’s own.