Govt may double minimum price of houses foreigners can buy

RM1mil floor price?

KUALA LUMPUR: The Government is considering raising the minimum floor prices of houses foreigners are allowed to buy to RM1mil from the current RM500,000 in an effort to control the rise in property prices, sources said.

They said such a decision was “in the pipeline” and the implementation would be made by the economic planning unit (EPU) under the Prime Minister's Department currently headed by Minister Tan Sri Nor Mohamed Yakcop.

“From what I understand, these revised guidelines have been discussed at the ministerial level and should this be enforced, it will mean that foreigners will only be allowed to buy properties priced above RM1mil. For now, the base price is set at RM500,000 for foreigners. This base price is a bit low looking at present circumstances,” a government source who requested anonymity said.

“The current trend in the property market indicates that prices are still continuing to climb despite measures by Bank Negara to curb property prices from spiralling out of control. We need to act before it goes further out of hand,” the Putrajaya source added.

Another source said the revised guidelines would also consider a slightly lower base price threshold of RM800,000 for residential properties in selected economic corridors such as Johor's Iskandar Malaysia to ensure the development and success of these corridor hotspots.

“This base price will also be subject to reviews by the Government from time to time depending on the inflationary situation of the economy and to keep overall inflation in check,” the source said.

Deputy Finance Minister Datuk Donald Lim had recently told the press that the Government would take “strict measures” to avoid a US subprime mortgage financial crisis after average house prices jumped almost 7% in the fourth quarter of last year despite measures announced by Bank Negara to rein in property prices.

“The Government is worried about property prices causing a bubble and we don't want banks to overlend to the property sector,” Lim said.

Industry sources surveyed by StarBiz said foreigners that tend to buy properties in Malaysia were those from South Korea, Japan, China and Singapore.

“This move will give an advantage to locals, especially those in the middle-income category as locals will not need to compete with foreigners. I am not surprised by this move, but our agency has so far seen mostly people from China and Singapore buying properties above RM1mil anyway,” a KL-based licensed real estate negotiator who did not want to be named said.

“However, we may see fewer transactions from the Koreans and Japanese. Westerners such as those from the United States and Europe won't usually buy. They prefer to rent instead,” the real estate negotiator added.

Meanwhile, the implementation of the higher floor price is expected to have a minimal impact on the property market in Malaysia as official statistics show that only 2.4% (worth RM1.45bil) of transactions conducted in the residential sector last year were worth RM1mil and more.

The Finance Ministry's Valuation and Property Services Department Property Market Report 2011 released last week showed there were 269,789 residential property transactions worth RM61.83bil transacted last year, the highest recorded in the last five years.

“Both volume and value recorded double-digit growth of 18.9% and 22.1% respectively. The All House Price Index surged to 156.9 points in the fourth quarter (Q4) of 2011 against 147.2 points registered in Q4 2010,” the report said.

The report said that landed housing was on a “general upward trend” in Malaysia and also attributed the rise in property prices to the Sungai Buloh-Kajang My Rapid Transit project.

“Across the board, terraced houses in KL recorded increases of 8%-13%. Increased prices of landed houses on Penang island were apparent. The highest transacted price of two- and three-storey detached (houses) were at RM2.05mil and RM5.15mil respectively,” the report said.

By The Star

Johor developers face future challenges

JOHOR BARU: Demand for residential properties is still good in Johor but developers will face challenges in the coming years due to labour shortage and a hike in building material prices.


Simon Heng .... ‘The take-up rate for new houses in Johor is still good despite the increase in prices.’

Real Estate and Housing Developers Association (Rehda) Johor branch chairman Simon Heng said developers did not have much choice but to pass the additional cost to house buyers.

He said building materials costs had increased by 10% to 15% in the past two months, translating into higher selling prices for new houses, especially in Johor Baru.

The take-up rate for new houses in Johor is still good despite the increase in prices and hopefully the trend continues next year,'' Heng told StarBiz on Wednesday.

He said banks were still offering attractive home loans, including full-loan facility for first-time buyers with a monthly household income of less than RM3,000 as announced recently in Budget 2011.

He said developers should look at coming out with innovative packages, including gated-and-guarded precincts and high-speed broadband facilities, to attract buyers.

Heng said the construction industry was also facing labour shortage and had to depend on foreigners as locals were not interested to take up the job.

He said many Indonesians that had been working in the construction sector in Malaysia for more than five years had left home as the construction sector in the republic was booming.

He said despite having workers from Bangladesh, Pakistan and Vietnam, contractors still preferred Indonesians as they were more hardworking and easy to communicate with.

By The Star

Rising building material, labour and hidden costs main concern for Johor developers

JOHOR BARU: Escalating prices of building materials, higher manpower costs due to shortage of labour as well as hidden costs are among the main concerns of property developers in Johor.

KSL Holdings Bhd executive director Ku Hwa Seng said these problems did not just apply to Johor. He believes that developers nationwide also faced similar predicament.

He said the infrastructure projects outlined in the 10th Malaysia Plan (10MP) and Budget 2011 would further push up prices of building materials and labour costs in the next five years.

“The demand for residential properties in Johor, especially in the Johor Baru district, has improved as the economy gets better but developers might have problems kicking off new launches,’’ Ku told StarBiz.


Ku Hwa Seng says infrastructure projects outlined in 10MP and Budget 2011 would further push up prices of building materials and labour costs in the next five years.

He said building materials prices had increased between 10% and 15% in the last 12 months while labour costs had risen by 50%, compared with two or three years ago.

Ku said that shortage of labour was still the main problem for construction companies.

Mahabuilders Bhd group chairman Mustapha Hassan said while the increase in the prices of building materials was relatively stabilised, the same could not be said for the labour costs.

“Like it or not, we still need foreigners to work at project our sites, locals are not interested or else many projects will be delayed not only the ones by the private sector but also by the public sector,’’ he said.

Mahabuilders is among the few in Malaysia specialising in acquiring and reviving abandoned property projects and labeled as a white knight the construction industry.

Among the company’s revived projects to date include Taman Baiduri Johor Baru, Skudai Villa, Indera Wangsa Larkin, Senai industrial park and Pandan City Johor Baru.

By The Star

Cement to cost 10pc more come May 1

The price of bagged cement is due to rise by 10 per cent to between RM15.50 to RM16.50 per bag from May 1. Each bag weighs 50kg.

Steel millers and cement manufacturers in Malaysia face higher production cost as world oil price had been on the rise.

Earlier this week, Tasek Corp Bhd, announced the 10 per cent retail price increase in a small advertisement.

When contacted, Master Builders Association of Malaysia (MBAM) president Ng Kee Leen said, "The cement manufacturers have been wanting to raise prices for the past year."
It is understood that bulk cement is also expected to go up by RM25 per tonne from May 1.

Builders are thinking of buying raw materials like cement from abroad as they are cheaper.

"As contractors, we have to control costs. We're looking at regional pricing. If we can get basic building materials like bagged cement and steel bars at a cheaper prices, we'll import," he told Business Times in a telephone interview from Taipei, Taiwan.

Ng was leading a 23-member delegation to participate in the 38th International Federation of Asian & Western Pacific Contractors' Association (IFAWPCA) convention to share Malaysia's initiative in promoting the use of environmentally friendly ways of construction.

"We're in talks with building material suppliers in Taiwan for more competitive prices. So far, the talks are encouraging," he said.

Following this, MBAM said pricier steel bars and cement will mean costlier construction projects, be it government funded or jobs procured from property developers.

"We're trying our best to minimise cost but we also have to pass on the material price increase to consumers," Ng said.

By Business Times

Construction industry building itself up again

Construction workers working on an apartment complex in Kuala Lumpur. CIMB Research says execution is now the order of the day for the construction industry.

PETALING JAYA: More than a year after the local construction industry was hit by deferred projects coupled with high material costs, its prospects appear to be on the mend, say industry players.

“We can definitely look forward to better times, especially with cheaper material prices now,” Malaysian Resources Corp Bhd (MRCB) group managing director Shahril Ridza Ridzuan told StarBiz.

Shahril Ridza Ridzuan ... ‘We can definitely look forward to better times’

Shahril said he believed the Government would be “efficient” in rolling out projects under the 9th Malaysia Plan (9MP) and stimulus packages which were key to the survival of the sector.

MRCB’s ongoing projects were “going well”, he said, adding that the company, largely involved in construction and property, had several projects under tender of which “one or two” fell under the RM67bil stimulus packages. Its current construction order book stands at close to RM3bil.

Last year was a difficult one for the construction industry with the change in government in certain states which subsequently thwarted certain infrastructure plans.

Coupled with the surge in prices of materials like steel, which peaked at RM4,000 per tonne and crude oil which hit a record of US$147 per barrel, many construction companies were struggling to keep margins afloat.

Steel prices have since softened to around RM2,000 per tonne last month while crude oil is about US$60 per barrel now, translating possibly into healthier margins for the players.

A clearer political direction is also apparent under the administration of new Prime Minister Datuk Seri Najib Tun Razak.

“Execution is now the order of the day,” CIMB Research told clients in a recent construction sector update.

Datuk Foo Chu Jong ... urged the Government to be quicker in implementing projects

“We believe things are getting better but we urge the Government to be ‘quicker’ in the implementation of more of the announced projects,” Prinsiptek Corp Bhd managing director Datuk Foo Chu Jong said.

The smallish construction company which has an order book of about RM400mil to RM500mil was “in discussions” with the relevant parties on several infrastructure projects and hoped to secure “some soon”, he said without elaborating.

In its update, CIMB Research identified 12 mega construction projects worth up to RM80bil, of which RM30bil to RM35bil was for the Klang Valley light trail transit extension and upgrade project, also known as the “highlight” project of the government’s pump-priming over the remaining 9MP period.

It identified MRCB, IJM Corp Bhd, Gamuda Bhd, UEM Builders Bhd and WCT Bhd as potential winners of this huge project, citing their cost efficient measures and track record.

The Bakun power transmission project is another mega project to look out for with CIMB saying that the project may take off “sooner than later” as cost had come off from RM14bil to RM9bil on lower steel prices.

MRCB was at the forefront for this project given its experience in undertaking major power transmission in the country, it said.

Najib said early this month that as at June 19, RM9bil worth of projects had been awarded under the Government’s RM67bil stimulus packages to stimulate economic growth. Of this, RM3bil had been disbursed.

By The Star (by Yvonne Tan)

Muhibbah MD sees better year for infrastructure construction

SHAH ALAM: Muhibbah Engineering (M) Bhd sees better performance from its infrastructure construction business this year due to cheaper materials after the division posted losses last year.

Nevertheless, the current general business environment remains slow and a pick-up in the construction industry is not seen for another six months, said managing director Mac Ngan Boon.

Mac said the group’s infrastructure construction business was expected to perform better this year as raw material prices overall had decreased by 10% to 15%.

“Last year was a difficult period as we had to endure high prices for raw materials and scarcity of equipment for our heavy engineering works.

“Going forward, we see a trend reversal and that (will have a) positive impact on our ongoing jobs,” he told reporters after Muhibbah’s annual general meeting yesterday.

The company’s infrastructure construction division registered a pre-tax loss of RM21.5mil in its previous financial year ended Dec 31 mainly due to increased costs in oil, construction materials, transportation as well as other operating costs.

This had a negative impact on the company’s net profit, which fell to RM21.8mil from RM70.2mil in FY07, although revenue rose to RM2.1bil from RM1.4bil.

Mac said although the construction business was currently slow, “our present strength lies in the orderbook that should last another two years during which we can replenish our orders.”

“The secured projects also give us the choice to select projects that would be highly beneficial for the company and not just aggressively fight to get jobs,” he said, adding that the company had bid for jobs worth RM3bil for both local and overseas projects.

“But the market environment is more competitive today,” Mac acknowledged when asked on the success rate of the jobs tendered for.

Muhibbah’s order book for construction projects stands at RM2.6bil currently with 55% local projects and the rest goreign.

On its crane business, Mac believes that demand will be more robust in the latter part of the year.

By The Star

Gloomy outlook for timber product sector

Projected pick-up in plywood demand from Japan the only bright spot going forward

The price outlook for Malaysian timber products remains flattish or negative, with an expected pick-up in plywood demand from Japan the only bright spot going forward, according to industry players.

Housing demand in Japan is expected to recover in September as a stimulus package for house buyers there starts to kick in, says Datuk Wong Kuo Hea, managing director of timber and plantation group Ta Ann Holdings Bhd.

Recently, plywood makers from three countries – Indonesia, Malaysia and Japan – had a meeting and agreed to try to sustain their prices.

“So plywood price has reached a bottom, (but) unfortunately consumption is going down for the next six months. Therefore, the price should be flat,” Wong says.

However, the demand for logs is still strong, particularly from India, but not from China where it is flat, he adds.

The International Timber Trade Organisation (ITTO), in its latest market report, says prices of Malaysian timber products “are not expected to hold,” due to the weakening domestic residential and commercial property industry.

The trade organisation notes that foreclosures of both private and commercial properties are on the rise in the wake of massive layoffs by major multinational companies and a slump in domestic demand.

“At the forefront of the layoffs were suppliers of major building and construction materials and household accessories.

“Prices of residential properties, often propped up by foreign investors and speculators, may actually decline for the first time,” it says.

However, ITTO sees a bottoming out of prices this month in Japan, a key importing market for Malaysian timber products. Prices of timber products in Japan are expected to bottom out after the Japanese Golden Week holidays in early May, it says.

On the global front, data show weakening timber-related exports.

Ghana reported dips in all timber product exports, except plywood, in 2008 while Brazil’s furniture exports to Argentina dropped 51% in the first two months of 2009.

Peru’s wood product exports also fell nearly 50% in the first two months of this year compared with the same period in 2008.

European imports last year showed a marked decline for tropical hardwood products, while China was the only country posting mixed results. China’s export value of wood and non-wood furniture grew 21.5% in 2008 but wood flooring sales declined in the fourth quarter of the same year.

By The Star (by Loong Tse Min)

Cement demand to fall for first time in 25 years

PETALING JAYA: The world’s biggest cement maker Lafarge SA is forecasting a contraction in demand for cement globally this year – the first in 25 years – due to the global financial crisis and economic slowdown.

Chairman and chief executive officer Bruno Lafont expects cement consumption worldwide to drop by up to 3% this year as the economic slowdown takes a toll on construction and infrastructure activities globally.


Lafarge SA chairman and chief executive officer Bruno Lafont - Starpic by Brian Moh

“However, to be conservative, we did not take much into account the economic stimulus packages that have been announced by various countries, not because they will not have an influence on cement demand as they all have an infrastructure component, but because we do not know when they will start to take effect.

“So there could be upsides depending on the effectiveness of the implementation of the stimulus packages. It should have a positive material impact on demand this year,” he told StarBiz in an interview during his two-day visit to Malaysia to meet key stakeholders.

According to Lafont, the global demand for cement has been growing at an average 5% annually for the past 25 years until 2007, with strong growth in emerging markets and more limited growth in developed countries.

He said global cement demand had started to shrink last year mainly due to the economic slowdown in developed countries such as the United States, Britain and Spain.

“Demand still grew to 2% last year boosted by good growth in most emerging markets,” he added.

Lafont also foresees a slowdown in cement demand in the country this year.

“We are not extremely optimistic this year but the stimulus package will help,” he said.

The country’s cement demand grew 7% to about 17 million tonnes last year versus 2007.

Lafarge’s Malaysian operations, Lafarge Malayan Cement Bhd, is one of the group’s largest business units globally and is the second largest in Asia, after China in terms of production.

Lafarge Malayan Cement has a production capacity of 12.95 million tonnes of cement annually.

To Lafont, Malaysia remains one of the 20 more important countries for the Lafarge group in terms of production capacity, profits, number of employees and so forth.

Its other 19 important countries include France, Canada, Britain, Spain, US, India, China, Egypt, Algeria, South Korea and Nigeria.

Lafont aims to turn the Malaysian operations into the best business unit of the group and best competitor in the Asian region.

“To be the best competitor means having the lowest cost, highest quality and most innovative products among others and this is what we are working towards,” he said.

The Lafarge group, which has a presence in some 80 countries, recorded a 2.2% growth in operating profit to 3.36 billion euros for the year ended Dec 31, 2008 versus 2007 while revenue improved by 8% to 19.03 billion euros.

By The Star (by Elaine Ang)

Analysts mixed on cement price outlook this year

Although major construction material costs have come down recently, analysts are mixed on the outlook for the price of cement this year.

An analyst said that theoretically, the cement price in 2009 should increase given that the prices of coal and electricity, which are vital for cement production, would be higher than last year.

“But we expect cement price to remain the same this year, as the global economic uncertainty and external factors were pressuring the local manufacturers from increasing the price,” she tells StarBizWeek.

However, another analyst from a multinational firm predicted otherwise. He opines that cement price will fall because its raw material costs had come down.

He says the price has not declined like other products because the cement industry is more localised and, therefore, domestic manufacturers have more control.

After the cement price liberalisation on June 5 last year, he says import volumes have remained small due to the high logistic costs.

Currently, he adds, the local price has risen about 27% to RM280 per tonne from RM220 early last year.

Cement Industries of Malaysia Bhd chief financial officer Rozahan Osman says demand for cement in the region will grow 1% to 2% this year if major infrastructure projects progress as planned and residential projects recover as predicted.

“Cement demand contracted in the second half of 2008, while the full year growth rate is expected to be around 3% compared with 8% growth in the first half. We expect demand to recover in the second half of 2009.

“Cement price could only be lowered when prices for major production input, such as coal and production consumable prices, are lower,” he says.

Meanwhile, Cement and Concrete Association of Malaysia executive director Grace Okuda says market forces of supply and demand will determine the price of cement.


Grace Okuda

She says unless the government speed up the implementation of the stimulus packages, especially on infrastructure projects, cement demand will continue to slow down.

“However, we expect demand to recover latest by the fourth quarter. Currently, there is no cut in production yet and as there is no retrenchment in the cement industry. Manufacturers are looking for new markets to mitigate the domestic slowdown,” she says, adding that presently, only a small percentage of the domestic production is for export.

According to Okuda, cement price had not risen from 1995 to late 2006. In December 2006, it rose only 10% although production costs had risen by 31%.

Since then, its price had gone up twice - 15% to 20% in June and about 8% in August last year. The increases were due to an unprecedented 63% hike in diesel price and 26% rise in electricity tariffs.

She says the association has informed the Government of the industry’s concern and hopes it will reduce electricity tariffs.

By The Star (by K.C.Law)

Drop in building material prices benefits contractors and Govt

The slump in building material prices will not only benefit contractors but also save the Government a significant amount of money.

In the middle of this year, the Government agreed to include the variation of price (VOP) clause into design-and-build projects on a 50:50 basis instead of limiting it to conventional contracts.

The list of claimable items was expanded to 11 from five previously due to the escalating prices of building materials. Since then, these prices have declined significantly.

Master Builders Association Malaysia president Ng Kee Leen said the VOP clause allowed either party to claim back any cost savings or shared any cost increases.


Ng Kee Leen

“The Government can claim back from contractors if the building material prices had fallen below the base price as at Jan 1, 2008,” he told StarBiz.

“It is only fair that the Government gets compensated when prices come down (below base) and vice versa for the contractors.”

Profit margins were little impacted as these were accounted for in the project bids and contracts, he added.

However, with the exception of petrol prices, the rest of claimable items were currently still above or hovering around the base price, Ng said.

An analyst at a brokerage said compensation to the Government, if any, would not affect contractors’ earnings.

For conventional projects, which are on tender basis, the margins are protected from fluctuating material prices as contractors can make a full claim if the costs are higher than a certain threshold.

For design-and-build projects, contractors can benefit about 50% from the price fall, or lose 50% of the price increase.

“Nonetheless, the companies that I’ve spoken to indicated that they have not made any claims for VOP this year,” he said.

A research house, in its report, said the near-term outlook of the construction sector had improved due to the sharp drop in prices of raw materials like steel, oil and bitumen, which would ease margin pressure.

The prospects for replenishing order book had also improved with the Government’s pump-priming initiatives.

Earnings of construction companies in the third quarter, however, were still impacted by the higher cost of building materials as some of these inventories were locked in earlier, the research house said.

By The Star (by Yeow Pooi Ling)

Gurney Paragon mall delayed

A model of Gurney Paragon. Inset: Datuk Khor Teng Tong.

GEORGE TOWN: Hunza Properties Bhd has delayed the construction of the RM400mil Gurney Paragon shopping mall on Penang island, said group executive chairman Datuk Khor Teng Tong.

Construction work on the mall was originally scheduled to begin in September, Khor said.

“But we decided to hold back because the cost of building materials is still high,” he told reporters after the group AGM yesterday.

“Although the price of steel has dropped, the other aggregates such as sand and cement are still costly.

“We will review the situation in March before setting a fresh target (for the) completion date.”

He added that “the present cost of building the shopping mall, taking into consideration also the cost of land, is about RM400mil.”

The Gurney Paragon shopping mall, with a gross built-up area of over one million sq ft with 700,000 sq ft of lettable area, was originally scheduled for completion in 2010.

But the construction of two condominium blocks in the Gurney Paragon project, which had a a gross development value of RM400mil, would continue and should be completed in 2010, as planned, Khor said.

“We started work last July and (work) has been going on non-stop since. Some 50% of the 220 units have been sold,” he added.

On the soft property market environment ahead, Khor said the group would still look for land for new projects in prime locations on the island and in the Klang Valley.

“We are also planning new residential projects in Tanjung Bungah on the island, Bertam on the mainland, and in Segambut (in Kuala Lumpur),” he said.

The group still has about 755 acres of undeveloped land in Tanjung Bungah (nine acres), Bertam (400 acres), Juru (40 acres), Sungai Petani (300 acres) and Segambut (six acres).

On its 36-storey “super-condominium” Infinity project in Tanjung Bungah, Khor said the group had recently completed the 26th storey. “It is scheduled for completion next year. About 60% of the project has been sold.”

By The Star (by David Tan)

Higher fuel, material costs hurt SP Setia profits

PROPERTY developer SP Setia Bhd (8664) reported weaker fourth quarter and full-year results for fiscal 2008 as higher costs of fuel and materials eroded profits.

It also missed its full-year sales target of RM1.5 billion, reporting a revenue of RM1.3 billion.

"We expect to maintain the group's performance next year by launching a product mix targeted at niche markets according to their need," group managing director and chief executive officer Tan Sri Liew Kee Sin said after announcing the results in Kuala Lumpur yesterday.



SP Setia's fourth quarter net profit fell 24 per cent to RM76 million due to disruption of work in progress led by fuel and energy price increases.
Revenue for the quarter was RM420.8 million, a 33 per cent jump from RM317.2 million previously.

The group's sales were mainly derived from its property development activities in Setia Alam and Setia Eco Park in Shah Alam; Bukit Indah, Setia Indah, Setia Tropika and Setia Eco Gardens in Johor Baru; and Setia Pearls Island in Penang.

SP Setia has 16 ongoing projects with a combined gross development value of RM30 billion.

Its total undeveloped landbank stands at 1,959ha, inclusive of 223ha in Vietnam.

For the full year to October 31 2008, SP Setia posted net profit of RM213.5 million, 18 per cent lower than what it made in 2007.

Revenue was up 15 per cent to RM1.33 billion.

It has proposed a total dividend payout of 17 sen per share.

Since SP Setia has already launched all its major townships complete with infrastructure, school, hypermarket and other amenities, it will now develop dedica-ted products driven by consumer demand.

"We are also beginning to see construction prices trending down, beginning with the decrease in steel bar prices. We will continue to develop products that suit house buyers' changing lifestyle and affordability," said Liew.

With a net gearing of 0.19 time and some RM593 million cash in hand, SP Setia will continue to look for suitable land in the three states it has already carved its Setia brand.

Commenting on its first overseas venture in Vietnam, Liew said the company hopes to launch the township by the second quarter of next year.

SP Setia has clinched a deal to jointly build a 32ha mixed development in Ho Chi Minh City catering for expatriates and senior staff working in the Saigon Hi-Tech Park.

By Business Times (by Zurinna Raja Adam)

Steel imports solution in sight

PETALING JAYA: The construction industry is in the final stage of discussion with the Government to iron out hitches in steel import procedures.

Effective May 12, the Government liberalised the prices of steel bars and allowed the import of steel bars free of tax. However, there has been some confusion at the Customs level.

Master Builders Association Malaysia (MBAM) president Ng Kee Leen said the discussion with the Government on the final details was expected to be completed soon.

“After four months of discussion, we have received a letter from the Customs Department agreeing that Malaysian standard MS146 is equivalent to British Standard BS4449. The confusion was one of the reasons for the steel bar import hitches,” he told StarBiz yesterday.

MBAM and the Real Estate and Housing Developers Association are leading the industry players in the discussion.

Since the Government lifted the ceiling price on steel bars and allowed the import of all steel bars that met the MS146 standard five months ago, there has been confusion on the ground as to the types of steel that can be imported tax-free.

“The Malaysian Customs did not realise that BS4449 steel bars were actually equivalent to the MS146. Thus, many international steel bars that met the BS4449 standard were not allowed to be imported just because of the different steel bar code,” Ng said.

“In addition, some Customs officers asked for import duty and import licence even though the Government had fully liberalised the steel market.

“The message of liberalisation was not understood by the Customs officers who worked on the ground. Hopefully, after this discussion is completed, the procedures and process of importing steel would be clear to all parties.”

Ng said the “full liberalisation” would be a positive move for the construction industry, as it would lower domestic steel prices to match those of neighbouring countries, which are about 10% to 15% lower. Currently, Malaysian steel bars cost about RM3,200 per tonne.

A source said that domestic monthly steel consumption had plunged to below 100,000 tonnes from about 200,000 tonnes in July in anticipation of the “full liberalisation” of steel imports.

Meanwhile, in a statement yesterday, Ng urged manufacturers, trading houses, distributors and Tenaga Nasional Bhd to adjust their prices accordingly, given that fuel prices had fallen recently. This would ensure that the benefits would be passed down to contractors.

“When the fuel prices increased in June, nearly all building materials’ prices jumped by 15% to 30%. The increase in diesel prices also caused transportation and machinery operation costs to rise tremendously by between 30% and 40%. All this happened in June.

“However, when world crude oil prices fell below US$65 per barrel and local fuel prices were adjusted downwards twice, transportation rates remained the same. Input prices have fallen but nearly all of the construction materials have yet to be reduced in price,” he said.

By The Star (by Law Kai Chow)

Steel firms still strong

PETALING JAYA: Liberalisation of long steel imports earlier this year and falling global steel prices seem like a recipe for disaster for the Malaysian steel industry and the sector’s share prices have certainly reflected this.

This week saw Lion Industries Corp Bhd being heavily traded and its share price tumbling by over 31% since Wednesday. The stock finished at 49 sen yesterday against Tuesday’s close of 72 sen.



Of the other steel counters that have fallen since Wednesday, Kinsteel Bhd shed 10% to 39.5 sen; Perwaja Holdings Bhd plunged 14.5% to 74 sen; while Ann Joo Resources Bhd, which saw trading volume start to spike on Tuesday, fell 27% over the four trading days to close at RM1.19.

However, contrary to previous periods of turmoil in 2005 that saw alleged dumping by China-based steel makers with excess capacity, the current situation is more nuanced than one might imagine.

OSK Investment Bank analyst Ng Sem Guan told StarBiz the global steel industry was more disciplined this time and he did not expect to see much dumping.

Ng said the global steel sector, including China’s, had been experiencing strong earnings in the past two years and had the reserves to support a scaling back of production to maintain steel prices.

“China also has high costs and globally we are seeing the industry making production cuts to overcome market factors,” he said.

However, he conceded that the sudden onset of the US financial crisis would have some impact on the sector.

“A cycle change in less than two months is definitely a shock to the industry but the government is liable to monitor the import situation,” he said.

A Lion Industries spokesman attributed the fall in global steel prices partly to unexpected weather conditions.

“We view the drop in demand beginning in the third quarter as seasonal due to weather conditions hampering construction activities in Asia and the Middle East.

“The drop continued into the fourth quarter, mirroring growing uncertainties of underlying demand with the threat of a global recession and tighter credit facilities to steel traders and producers,” he told StarBiz.

The spokesman confirmed the company had curbed production. “We are closely monitoring the market situation and will adjust our production accordingly.”

On the industry outlook, he said the company expected the market to pick up in 2009, “given the cyclical nature of the steel business.”

As for the immediate term, he said costs for raw materials such as scrap metal had also dropped concurrent with the fall in global steel prices and he expected margins to be impacted.

Perwaja Holdings Bhd managing director Tan Sri Pheng Yin Huah disclosed that his company had also cut production.

“Yes, worldwide steel millers are cutting production and we are of the opinion that this is a sensible and wise move.

“It is wrong to perceive that the steel industry is troubled when steel millers cut production. The steel millers are adjusting their production according to market forces.

“Overstocking does not benefit the millers. Perwaja is monitoring the situation closely and its production level will depend on the market situation,” he said.

As for the industry outlook, Pheng said while there was still demand for steel products locally, it was “not as robust as before the credit crunch”.

He said the steel demand was closely linked to the Malaysian economy, which had not adversely affected by the financial turmoil and was still recording growth.

On the plus side, the cheaper steel stocks offer a good buy with OSK’s Ng saying that it would be “unreasonable to downgrade at these (current) valuations, with such low price to net asset value figures.”

Meanwhile, Master Builders Association Malaysia secretary-general Yap Yoke Keong said domestic steel prices were still about 15% higher than in neighbouring countries.

According to Yap, only the very large contractors in the country imported steel materials directly while the smaller players sourced from stockists.

Going forward, Yap sees some slowdown in construction activities in the medium term as both the private sector and the Government adopted a wait and see attitude in executing their projects.

By The Star (by Loong Tse Min)

Slight rise in demand for cement this year

The Cement & Concrete Association of Malaysia (C&CA) expects domestic cement demand to grow marginally by 3% to 5% to about 16.33 million tonnes this year versus 15.86 million tonnes in 2007 due to a lacklustre construction industry.

Chairman Tan Sri A. Razak Ramli said cement demand had remained stagnant at 15 to 16 million tonnes a year since 2003.


Tan Sri A. Razak Ramli

“Despite an encouraging growth in the first half of the year, we will only see a relatively small growth in demand this year due to the slowdown in the construction industry. We hope things will be better next year. If the economy picks up next year then construction should also,” he told StarBiz.

In addition to a lack of demand, the local cement industry has been a much misunderstood industry.

Various accusations have been hurled at industry players including increasing cement prices after liberalisation and creating artificial shortages through orchestrated plant shutdowns.

There have also been calls by various parties for the Government to remove all import duties for cement, impose an export or windfall tax and/or impose an export ban on clinker and cement to ensure sufficient domestic supply.

To Razak the allegations are baseless.



“There can never be a shortage of cement in Malaysia as the cement installed capacity is very high at 28.3 million tonnes,” he said.

In 2007, cement production inclusive of export was only 19.48 million tonnes of which 15.86 million tonnes were consumed locally. Razak said the forecast production this year would be slightly higher at 19.62 million tonnes as domestic consumption was expected to increase to 16.33 million tonnes. Cement export is expected to increase to 14.7% of production this year, up from 14% last year.

“The Government should also not impose an export ban on cement because manufacturers can easily meet domestic demand and export the excess,” Razak said.

Moreover, the Government is in full control of clinker and cement exportas every tonne can only be exported with an export license from the International Trade and Industry Ministry supported by a letter of no objection from the association.

Razak said cement manufacturers were also not intentionally creating shortages by simultaneously shutting down plants for maintenance.

“No manufacturer would shutdown their plants unnecessarily thus incurring production losses and additional costs including high fixed costs. Kilns require a minimum of three days to heat up to the desired temperature of 1,500 ºC.

“All cement companies notify the Domestic Trade and Consumer Affairs Ministry on their scheduled plant maintenance shutdowns. The plants would also have stocked up to ensure sufficient supply,” he said, adding that unscheduled plant breakdowns, however, were beyond the manufacturers’ control.

He said complaints of tight cement supply, especially in Peninsula Malaysia, was actually due to the fact that “bagged cement was not moving fast enough.”

“With the increase in fuel price, many transporters are reluctant to carry bagged cement as cargo as they are low value, bulky items. Otherwise they will try to overload the lorries. There is also a lack of lorries, drivers and licences,” he added.

Road Transport Department operations on overloaded tankers and lorries carrying cement and its related raw materials also added to the industry’s transport woes.

Razak pointed out that although the Works Ministry had gazetted an additional 20% loading from the present permissible weight for lorries/tankers on all federal roads in Peninsula Malaysia, federal roads in east Malaysia and state roads nationwide were not covered.

To help ease supply issues, the C&CA is in the midst of setting up a public hotline centre to assist those in Peninsula Malaysia who have trouble with cement supply.

“Through the centre, Class F contractors will have a direct avenue to obtain cement. We will also be able to capture and build a database on public complaints on cement supply,” Razak said.



On cement price increases, Razak said the industry did not raise prices indiscriminately and exorbitantly despite having absorbed cost increases of more than 60% from 1995 to 2007.

There were only two price increases between 1995 and 2006 when cement prices were under the Price Control Act - 10% in August 1995 and an average of 9% in December 2006.

Following cement price liberalisation on June 5, prices were only increased twice - 15% to 20% country-wide in the same month as well as an average 8% in Peninsula Malaysia in August due to an unprecedented 63% diesel price hike and a 26% rise in electricity tariff. This price will hold until December.

Despite the price liberalisation, the return on investment (ROI) for the cement industry has only increased to 6% to 10% from the previous 3%.

“This is still insufficient to encourage reinvestment by industry players,” Razak said, adding that the cost of a 1.2 million tonne integrated plant was about RM1bil currently.

“This is why there has been no expansion programme or new plants coming on-line since 1997 although manufacturing licenses for the production of more than 14 million tonnes of cement have been issued by the Government.

“There has been some re-investments and upgrades but returns and demand are too low to encourage new expansion.”

By The Star (by Elaine Ang)

Delivering ahead of schedule

Two popular radio channels recently broadcasted Naza TTDI’s new tagline: “Delivering quality ahead of schedule, not just a few months but up to 20 months.”

Is this possible given that many developers these days are struggling to launch new projects not to mention completing existing ones with soaring construction costs and sluggish sales?

Naza TTDI Sdn Bhd group managing director Datuk Johan Ariffin has the facts to show that it is not empty talk - the company completed the 350,000 sq ft Giant hypermarket in Shah Alam in six months in 2001, a Malaysian Book of Records Achievement.

It delivered Phase 1 and 2 of its Jayamas shop offices in Shah Alam 20 months ahead of schedule and it is 15 months ahead of schedule for The Residence condominium in Taman Tun Dr Ismail. It also completed the TTDI Plaza shop offices and the Laman Seri bungalows and semi-detached units a year ahead of schedule.

“Naza TTDI has been at the forefront of property development since 1973. Being one of the leading players in the industry for over 35 years, the company has earned the distinction very few premier property developers have, that is the consistently delivering quality products ahead of schedule,” Johan said.

He added that purchasers would not have to worry about time delays and other costs associated with delayed and abandoned projects.

“Projects that are delivered ahead of schedule will give buyers significant savings in progressive interest amounting to thousands of ringgit. Our purchasers can also move into their units earlier thus saving on rental or if they are purchasing the properties for investment they will enjoy earlier rental income,” he said.

“We are relentless in our pursuit of quality. We have a technical team that is responsible for ensuring daily quality control and an independent quality assurance team that conducts regular checks to ensure quality is up to the mark.” All contractors are briefed on the company’s strict quality benchmarks before they are awarded projects.

“We also adopt the Construction Industry Development Board’s QLASSIC standards and subject our projects to their audits and scoring. We are also ISO 9001/2000 certified and are audited by SIRIM for strict compliance of the quality management system,” Johan said.

He said buyers were increasingly discerning and developers were taking note of their demand for quality.

“We believe that purchasers will single out companies that are sensitive to such needs and that have policies geared to deliver quality. Such quality focused developers should do well in the future as their products would be much sought after due to lower incidence of defects and delays due to defect rectifications,” he said.

Such stringent controls would result in higher construction cost, as contractors would have to price in for better quality and shorter completion period, he said.

“However, we help to minimise such cost increase by pre-qualifying contractors and making prompt payment on progress claims. There are even instances where we can actually purchase materials at more competitive prices than our contractors. It is more a question of networking and managing logistics. If done well, the cost can be controlled,” he said.

By The Star

'Good initiatives for people but more can be done for REITs'

BUDGET 2009 is announced amid very challenging times in view of the rising food and energy costs.

The government has introduced various measures to help increase disposable income to mitigate the impact of the higher cost of living, thus demonstrating that it is a caring government.


Ngian Siew Siong Managing Director Sunway City Bhd (property development division)

* Enhancing training and skills programmes is a timely move by the government to attract more locals into the industry and avoid being too dependent on foreign labour.

However, the current incentive of giving 50 per cent waiver of the CIDB levy to encourage use of the Industrialised Building Systems (IBS) is inadequate.

We urge the government to seriously consider providing additional incentives.

* Reducing the withholding tax rate on real estate investment trust (REITs) for foreign institutional investors to 10 per cent from 20 per cent puts us on par with Singapore.

However, we are still not competitive as local and foreign corporations are still subject to 26 per cent tax compared with 18 per cent in Singapore.

As for domestic and foreign individuals and domestic institutions, we are still subject to 10 per cent tax. In Singapore, REITs are exempted from tax.

As such, more can be done to make Malaysia more competitive regionally where REITs are concerned.

* The benefit of the tax exemption on interest subsidy for housing loans by employers is insufficient, taking the market average of two per cent subsidy. To encourage home ownership, we prefer that mortgage interest be fully tax-deductible.

* While it is good that the government is putting more emphasis on greater use of renewable energy and energy efficiency, there could be more incentives for the local property industry to incorporate "green" building designs and construction.

This could be achieved by abolishing taxes and duties, not only for local but also imported materials and equipment such as low E glass (to reduce heat emission) and inverter air-conditioners (which regulate thermal power flow).

We applaud the government's efforts to promote use of renewable energy and energy-efficient products. However, we hope the government will extend further incentives to the property industry to promote green building designs for sustainable developments that reduce long-term operation and maintenance costs.

By New Straits Times

MRCB sees better results in fourth quarter

KUALA LUMPUR: Malaysian Resources Corp Bhd (MRCB) expects a better fourth quarter on the back of moderating construction and building material prices, says group managing director Shahril Ridza Ridzuan.

Shahril Rodzha Ridzuan

The group posted a net loss of RM5.2mil for the second quarter ended June 30 amidst soaring construction costs, which resulted in substantially reduced margins despite a substantial increase in revenue to RM228.5mil from RM96.6mil in the previous corresponding period.

Due to accounting standards, Shahril said the company had to take into the books any possible increase in cost in its second quarter results even though the group was seeking variation-of-price compensation for some of its ongoing projects.

“The third quarter will still reflect the impact of the increase in electricity tariffs and fuel prices, which rose fairly high during the quarter,” he said after the unveiling of MRCB’s first Global Reporting Initiative (GRI)-based sustainability report on Wednesday.

MRCB has deferred some of its property launches until such time when material prices stabilise and the company is able to properly account for project costs.

“The price points of our projects will move up in tandem with rising building costs. New launches will have price adjustments to reflect those changes,” Shahril said.

On developments in the Middle East, he said the company had started work on a project in Saudi Arabia. “It’s something very similar to what we are doing at KL Sentral and Penang Sentral,” he said, adding that the project was still in the early design phase.

On its sustainability report, Shahril said: “We look at this report as an important first step to make sustainability a core value at MRCB. We are committed to transparency and making this information available to the public as we work towards our goals.”

The sustainability report includes key indicators on the group’s environmental and social governance performance.

It also highlights the importance of sustainable development as part of the group’s broader agenda, based on the G3 guidelines which have been harmonised with the United Nations Global Compact and other tools.

By The Star

Property sector still a draw

KUALA LUMPUR : The Malaysian real estate still offers an attractive investment opportunity for foreign players despite uncertainties in the global financial markets.

According to Housing and Local Government Minister Datuk Seri Ong Ka Chuan, apart from the Middle East, the property sector was also attracting foreign investors from the Indian subcontinent and Asian countries such as South Korea, China and Japan.

“Malaysia is becoming more attractive to foreign investors,” he told reporters after officiating the 19th National Real Estate Convention (NREC) yesterday.

However, he did not discount the fact that the global rise in fuel prices had a domino effect on the local real estate industry, which could trigger a slowdown in the overall economy.

Existing projects should go on and new projects initiated to counter the rippling effect on the economy, he said.

While the rising construction and fluctuating fuel costs were an immediate challenge for the industry, Ong was optimistic that the budget would be “people-centric,” with more goodies to help alleviate the burden of these spiralling costs.

“We hope that the Government will give some incentives to the housing and building materials industry,” he said.

Ong also called for a review of the diesel prices

“An area that has been overlooked is the diesel-powered machinery being used in building sites,” he said, suggesting the Government review the road tax of diesel vehicles to be at par with petrol vehicles.

On the Real Estate and Housing Developers Association’s proposed change in housing policies with regard to the 30% bumiputra quota, Ong said there should be some flexibility. “Maybe in areas with not so many bumiputras residing, the quota could be adjusted.”

By The Star

Local steel supply still okay

PETALING JAYA: The liberalisation of the domestic steel market has not resulted in an artificial shortage of the commodity or higher steel exports as claimed by local housing developers and construction industry players.

Malaysian Iron and Steel Industry Federation (Misif) president Chow Chong Long maintained that there was no steel shortage in the country as steel millers had continuously increased their capacity over the past few years.

Misif represents 150 members, including five of the largest local steel millers – Lion Group, Kinsteel-Perwaja, Ann Joo Resources Bhd, Southern Steel Bhd and Malaysia Steel Works (KL) Bhd (Masteel).

Chow told StarBiz that Misif did not foresee any problems in supplying steel bars based on the Construction Industry Development Board’s (CIDB) forecast 2.1 million tonnes in 2008.

In the first half, steel millers had confirmed the supply of 1.2 million tonnes.

According to Chow, many previous claims of steel shortage had never been independently verified.

Over the last few weeks, orders received by steel millers were 30% below normal and “we even need verification whether this downtrend is likely to continue,” Chow said.

This was despite the move by the Master Builders Association of Malaysia (MBAM) and Real Estate and Housing Developers Association (Rehda) calling on the Government to impose a 15% export duty on billets and steel bars, or even banning the export of the latter, implying a shortage in steel supply.

Chow had suggested an independent study to confirm the shortage or oversupply of steel.

In addition, the Government could appoint Misif and CIDB as mediation agencies to help contractors negotiate with the variation orders (VO) with the developers, while steel mills could facilitate the VO computation by publishing its monthly prices to serve as a benchmark.

The lifting of the local steel ceiling price on May 12 has seen the commodity soaring by 55% to RM4,000 per tonne currently, moving in tandem with the international price of about US$1,200 to US$1,300 per tonne.

The impact of soaring prices has resulted in housing developers and construction players putting pressure on MBAM and Rehda to look for amicable solutions pertaining to the escalating raw materials, claims on artificial steel shortage and steel millers opting for exports due to the higher international selling price.

In the past one month, MBAM and Rehda had put forward a series of proposals to the Government, including a temporary ban on exports of local steel, allowing steel imports, tax-free import of steel that meets Malaysia’s standard MS146 or equivalent to BS4449 standard, establishment of a steel stockpile and export quota on steel millers.

The latest is a request for a six-month lead-time announcement on price increase to enable contractors to make provisions to mitigate the rising costs.

On Tuesday, two separate closed-door meetings were held among the International Trade and Industry Ministry, officials from MBAM and Misif.

Another was held between the Housing and Local Development Ministry and MBAM representatives.

An industry source told StarBiz that ministry officials had cautioned MBAM to be “guarded” with its stand and various proposals to the Government, which could affect investors’ confidence in Malaysia’s credibility.

“They must understand that the Government cannot keep on changing its policies overnight. All must be taken into consideration to ensure parties involved are well taken care of,” she said.

Meanwhile, Masteel managing director and chief executive officer Tai Hean Leng concurred that there was no steel shortage.

“Contractors are trying to pressure steel mills to reduce prices by using claims of shortage and high prices to get the Government to impose export tax.

“A quick check on the delivery lead time of mills will show that they have high stocks and make deliveries within a week of receiving orders. Steel millers are exporting because there is not enough demand from local contractors,” he added.

After the liberalisation, Tai said steel bars were being imported as verified by most local customers.

For flat steel products, an industry player said there had been some operational disruptions in terms of delivery and production since late 2007, which led to price increase for hot- and cold-rolled coil in the past six months.

However, the problems had been resolved and supply was back to normal, he said. The major producer is expected to upgrade its plant by end-August, which may tighten supply.

As for long steel products, he said: “The slowdown within the construction and building materials sectors has led to weaker demand, and this caused local prices to continue to trade below world prices.”

Under such circumstances, he said, steel millers would find it more attractive to export.

An analyst with a local brokerage said local millers would rather sell locally to avoid freight charges.

“There is no acute shortage of supply as demand is slowing due to contractors re-drawing orders. Many projects are either delayed or put on hold.

“The smaller contractors are facing cash flow issues, as millers prefer cash transactions to avoid credit risk,” he said.

He said millers had their own business risks and it would be unfair to clip their wings by imposing a ban on exports or reversing to the ceiling price mechanism.

“It must be a free market. If the contractors feel the local prices are too high, they can source elsewhere,” he added.

Another analyst asked: “If there is a shortage locally, where is the demand?”

There is always a delivery lag of eight to 10 weeks even for international suppliers.

There is a shortage worldwide because demand is growing at 6% to 7% per annum while new capacity is only coming in in two to three years.

“Prices will continue to remain high and a reprieve is unlikely unless there is a global slowdown,” he said.

The millers also face high freight charges and long delivery time as they source more than 70% of scrap from abroad.

He pointed out that liberalisation was the best option as players could have a free hand in choosing where to source their materials.

By The Star - StarBiz - (by Hanim Adnan & Yeow Pooi Ling)