KUALA LUMPUR: Property developers will be forced to raise prices of residential properties by as much as 20 per cent due to rising cost of building materials

The Real Estate and Housing Developers' Association Malaysia (Rehda), however, does not think this will lead to a property glut.

"In Malaysia, there are very few investment portfolios that one can hold. Besides stocks and bonds, the other alternative is property and one can never go wrong on that," Rehda president Datuk Michael Yam Kong Choy claimed.

Rehda is optimistic that property prices will pick up in the second half of this year and 2012, given the positive outlook of the Malaysian economy.

Yam said the property sector has a direct correlation to the economic condition as demand for properties increases during a booming economy.

"Unless there is a serious financial crisis, I see steady uptake in properties," he told reporters after Rehda's first half 2011 property update yesterday.

On building materials cost, Yam said prices of items, such as bricks, steel, cement and sand, which are major construction components, have increased to 89 per cent from 32 per cent within eight years.

Yam said developers these days can only afford a net margin of about 5 per cent to 10 per cent because of high cost of building materials.

"Look at SP Setia Bhd, one of the biggest developers in Malaysia with a market capitalisation of nearly RM7 billion, but made only around RM250 million in net profit last year. There are other businesses which make much more than property developers," Yam said.

The high cost of building materials and land prices and the shortage of labour will continue to be the main challenges faced by property developers in Malaysia, he added.

On the trend moving forward, Yam said popularity of properties in the vicinity of transport modes will be more desirable and those looking for landed properties would be more willing to move further out from city centre areas.

In the last 12 months, companies such as SP Setia and UEM Land Holdings Bhd have been buying land in Ulu Langat, Selangor, in anticipation of demand for properties in the area. - By Sharen Kaur