RISING prices of building materials will impact profitability of property developers who will try to avoid passing on the costs to consumers.

       Through various strategies to reduce cost fluctuations, developers hope to improve their cost management while the usage of innovative modelling and planning tools will enable them to design and construct more efficiently and sustainably.

       UEM Sunrise Bhd sees that the increase in prices of building materials will definitely reduce the development’s profitability to the company.

       “However, we are confident that we can absorb and manage the risk cost fluctuations without increasing our prices.

       “We see this as an opportunity to reinvent and a chance to relook at our relationship with our vendors,’’ said UEM Sunrise chief executive officer Sufian Abdullah.

       UEM Sunrise will be revamping its entire procurement strategy to mitigate cost fluctuations and allow deeper involvement of vendors in the early stages to reduce uncertainty in the project’s cost structure.

       A better solution to this problem of rising costs is to mitigate the increase in construction costs.

       Sime Darby Property will look into alternative materials, designs and specifications for its developments, and use more sustainable products which are available today.

       “It would not be prudent to keep cutting costs, as there are limitations to that practice.

       “As much as possible, Sime Darby Property Bhd will try to absorb the cost increases rather than pass it onto consumers,’’ said Sime Darby Property group managing director Datuk Azmir Merican.

       Since the start of the year, prices that have experienced the highest increases are those of steel-based materials including bars and steel roof trusses, copper as well as pre-mix materials such as concrete and bricks.

       “We are mindful of the price increases and will mitigate this through strategic procurement and smart spending processes to ensure that the final prices for potential homebuyers are not affected,’’ said Sufian.

       Sime Darby Property will look into alternative materials, designs and specifications for its developments, and use more sustainable products which are available today.

       The top five building materials with the highest price increases, according to data from Sime Darby Property, are reinforcement bars, concrete, aluminium and glazing, copper and commercial diesel.

       Among the affected materials directly related to the construction industry are reinforced iron and crushed aggregates.

       Items that have shown drastic price increases include mild steel and sand, up by 41% and 20% respectively since October, 2020, said a recent joint statement by Master Builders Association Malaysia, Real Estate and Housing Developers Association Malaysia (Rehda), Persatuan Kontraktor Bumiputera Malaysia, Guild of Bumiputera Contractors Wibawa, the United Malaysia Contractors Association and Persatuan Kontraktor India Malaysia.

       The hike in prices of building materials has resulted in an increase of 13% to 20% in construction costs.

       Mah Sing Group Bhd has taken mitigation plans against these price rises, but it still recognizes that rising costs of raw materials may have an impact on the development of its projects in the future.

       “We hope that the government will take into account the industry’s concerns regarding the lowering of regulatory costs and capital contributions, especially for the construction of affordable housing,’’ said Mah Sing Group chief executive officer Datuk Ho Hon Sang.

       The government can also assist developers with infrastructure and utility heavy compliance expenditures, such as those related to development charges, the Improvement Service Fund, strata title applications and site conversion premiums.

       “At the same time, as a developer, we will continue to make a positive contribution to cost management,’’ added Ho of Mah Sing Group.

       It is urgent to lower the costs of building materials.

       “The construction could greatly benefit from the government’s engagement with the industry supply chain players to maintain and if possible, reduce the costs of the top five building materials – reinforcement bars, concrete, aluminium and glazing, copper and commercial diesel,’’ added Azmir of Sime Darby Property.

       Transparency and equity is key.

       Developers should be able to anticipate any major price movements in the market and be able to work in advance.

       “We should be able to work together with the government to have an advanced view of any policy changes that would influence the cost structure in the industry,’’ added Sufian.

       Subsidies and facilitation funds will also help, but these have to be looked at in totality.

       Rehda suggested that the government intervene over the rising prices of raw materials, with actions such as continuous monitoring and enforcement to eliminate profiteering and anti-competition activities in the supply chain.

       The government should also expedite the entry of foreign workers into the country and encourage private project owners to introduce a Variation of Price clause, to take note of price differences, in their contracts.

       All these measures require careful negotiations as many parties in the supply chain are involved; they should co-operate to see how consumers may emerge as the least affected.

       Yap Leng Kuen is a former StarBiz editor. The views expressed here are the writer’s own.