L&G: Construction costs to rise

KUALA LUMPUR: Property developer Land & General Bhd (L&G) foresees a 10-15% rise in construction costs moving forward due to the weakening ringgit, which will result in higher property prices for new projects, said its managing director Low Gay Teck.
“Cost has been going up progressively over the last one to two years. Of course in the last six months, the development in terms of the weakening ringgit, will have an impact on our future contracts to be awarded,” he told reporters at its AGM yesterday.
While the bulk of its construction materials are locally produced and under controlled pricing, Low said some items or finishes are imported and quoted in US dollars.
“Definitely there will be impact for imported items, for construction materials that are quoted in US dollars, definitely it will affect construction cost. For our existing projects, because it’s already a work in progress, we’ve locked in the sales, most of the construction materials have been ordered and contracts awarded. It doesn’t affect our cost for ongoing projects.
“For new projects, definitely cost will be slightly more expensive and it will be adjusted accordingly to the sales price,” he said.
To mitigate this, Low added the group is focusing on acquiring strategic landbank, rolling out its new projects, completing existing projects and preparing for handover to buyers.
“As a developer, there’s not much that can be done on our side but certain measures need to be put in place in terms of our new launches, the selling price, taking into consideration the potential increase in cost,” he said.
He added the group is looking to replenish its landbank especially in the Klang Valley as land prices have become more reasonable and it is in a good position to do so with cash of over RM300 million and asset base close to RM1 billion.
“Landbank acquisition is an ongoing part of our business. The cash in hand that we have of over RM300 million, is also part of the reserve that we will be using to source for either new landbank to acquire, or to do joint ventures with landowners. We are currently talking. We hope to secure some bigger projects that will bring the company to the next level of growth.
“There are a few prime projects in town where landowners are looking for partners and so on. We are in talks with them and we hope to at least secure some parcel to add on to our projects in the pipeline. These are all in Malaysia and very much focused in the Klang Valley,” Low said.
The group is also in the midst of acquiring 112 acres in Seksyen U10 Shah Alam, near Bukit Jelutong, and is currently awaiting approval from the authorities. The project, earmarked for landed properties, has an estimated gross development value of RM1 billion.
Despite the challenging outlook for the next 12 months, Low does not foresee any drastic impact on its business.
With unbilled sales of RM369 million, new developments in the pipeline in excess of RM2 billion as well as ongoing projects, he said the group is “comfortable” despite being cautious of the property cycle.
“It is no secret that the market is slightly weaker but it is a very normal cycle that the property industry goes through. When it comes to L&G, for the group, our ongoing projects as well as our existing landbank, it’s all located in very prime areas, very prime and mature residential or near city centre locations. With these prime landbanks within our group, I do not foresee drastic impact on the group,” he said.