“Will Residential Property Prices Rise?” Part 1/2

Which property market are you talking about?

Rising inflation and the increased costs of many construction materials are of concern to most property developers. Why? Obviously if they want to maintain their profit margins, the selling prices of developers' new project properties will have to be adjusted upwards. One major developer says margins might come under pressure in 2H because of rising building materials and a labour shortage but will be cushioned because some contracts are non variable, IE fixed

Do property developers have leeway to hike selling prices? Well that depends on what "type" of residential property you are thinking about.

If you are talking about high rise KLCC luxury condos, then in my opinion the answer is NO. There is already an oversupply of properties in KLCC. And recent auction prices of High End KLCC condos are trending lower. Many freehold 5* luxury condos going to the auction block are in fact now priced at RM600 - RM650 PSF because there are no buyers at 2nd and 3rd auctions. That suggests market sentiment towards the High End KL luxury condo market is still in the doldrums.

Read my recent posts on the KLCC Auction Property Market at 360 KLCC - Perspective, Insights and Analysis for the reasons why the KL high end property market is in big trouble.

In a BFM interview, Amy Wong, Ex Dir Research at Knight Frank Malaysia points out some of the negatives the property market is currently facing actually predate the pandemic, eg the large overhang of unsold properties and a potential GE this year that could bring uncertainties.

I think Amy might have left out other negatives -a depreciating Ringgit and the R word. The Fed increased interest rates by 0.75% recently and signaled more hikes are likely. As a result, the US looks likely to slip into recession next year.

Malaysia has been behind the curve in hiking interest rates higher to rein in inflation. But from July, Putrajaya is withdrawing subsidies for cooking oil, chicken and other staples. Nothing yet about removing petrol subsidies. I think food inflation (4% in April) will probably increase after July. Will Bank Negara Malaysia allow interest rates to increase significantly by 1.5-2% in 2023?

to be continued

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