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Tuesday, August 5, 2008

Fuel least of builders’ worries

Last week’s announcement of a monthly review of petrol prices may not be very helpful to the housing and construction industries.

The Government’s move is aimed at helping ease inflationary pressures in the economy although critics feel that the 41% jump in petrol prices and 63% hike in diesel prices in June had set in motion an unprecedented inflationary trend.

Indeed, inflation hit 7.7% in June, the highest in 26 years

In less than two months prices of almost everything from a bowl of noodles, cooking gas, public transportation, hire purchase rates and electricity tariffs to raw materials for the construction industry increased sharply.

Many people are sceptical about the 7.7% figure as they think prices of most products and services have gone up 30% or more.

While industry players generally welcomed a possible downward revision of petrol and diesel prices, it may be a case of “a bit too little and too late.” Some wonder what real good it can bring when much of the construction industry’s woes like high steel bar and cement prices and shortage of essential building materials are still unresolved.

The housing industry, too, has been hit by threats of contractors walking off their jobs. Some have surrendered their projects while others have refused to even tender for new jobs for fear of further jumps in construction costs.

The low and medium housing sectors have reported even more sluggish sales and many of these projects can be expected to take longer to complete, or even stall/abandoned.

Although high-end projects are deemed more resilient, partly because of a higher mark-up and less likely to be badly affected by profit margin erosion, there is still a possibility that some of them might also be stalled or left uncompleted if the economic slowdown worsens.

While a downward revision of petrol and diesel prices might be a short-term relief, many fear that it could create even more uncertainties especially if prices fluctuate with each month’s review.

“It’s going to cause more confusion. I don’t see how it can help, like the Government giving RM625 to owners of vehicles of less than 2,000cc and spending so much of taxpayers’ money,” said a developer, adding that the lack of transparency and reports of wastage in government projects should be also addressed.

Another main worry, especially for those servicing housing loans, is whether the mortgage rates would inevitably go up as well. Fixed deposit rates have crept up slowly, and so will lending rates eventually.

Although Bank Negara has refrained from increasing interest rates, some banks have increased their rates for hire-purchase.

Domestic Trade and Consumer Affairs Minister Datuk Shahrir Abdul Samad had said at the Master Builders Association Malaysia 54th anniversary dinner on Aug 1 that his ministry would continue to identify and remove problems that had contributed to the cost of doing business.

“We hope to institute necessary measures and initiatives to help reduce costs and enhance efficiency and competitiveness of the construction industry,” he said, adding that the Government would strive to provide excellent service delivery to facilitate the construction business community.

At a press conference later, he said the Government would also look at improving the distribution system of goods as a way to cut costs. As an example, he said, the distribution of bread was a very effective way as there were only two levels from the bakery to the shopkeeper.

Judging from the recent case over the alleged high maintenance of government cars, it may also be timely to ensure that such costs are kept reasonably low.

By The Star (by S.C.Cheah)

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