PROPERTY developers is seeing red over a government move to regulate the price of cement and steel through a proposed automatic pricing mechanism (APM).

A lack of price certainty, making tenders difficult, has been cited as one reason, but developers are also chaffing at the prospect of having to put up with increased costs in the area of low-cost housing where prices are capped.

As with steel, cement is a controlled item. Cement prices were raised 10 per cent last December, and the industry was expecting another hike this year. That did not materialise. Instead, the APM is to be implemented from January next year, with prices reviewed thrice yearly.

Although the APM does not necessarily translate into higher cement prices, the current ceiling of RM220 (S$97.50) per tonne would be lifted. 'All it means is that cement prices become more dynamic and there will be one universal spot price in the market,' JP Morgan analyst Joh Oh observed in a note to clients last week.

But it is this price 'dynamism' that has the building industry worried, as they believe prices are likely to rise rather than fall with the APM in place.

Master Builders Association of Malaysia (MBAM) president Patrick Wong observed that frequent price adjustments would be tough for contractors and builders. As the tenure of a contract is usually 2-3 years, the pricing could be adjusted numerous times if the recommendation for a price review is carried out every four months.

He said that MBAM objected to a cost-plus APM that basically ensures a guaranteed profit for cement producers while end-users such as contractors are made to absorb the costs and risks. And with steel likely to be similarly adjusted, builders and developers reiterated their call for liberalising the sectors by allowing for imports.

'If they want to implement the APM system, they must allow for imports. They can't have the best of both worlds,' said Real Estate & Housing Developers' Association (Rehda) president Ng Seing Liong. From RM5 a bag of cement last year - the result of a price war - builders are now paying RM11 a bag, he told BT, despite cement producers operating at only about half their capacity.

Already dissatisfied at having to pay some 30 per cent more that the ceiling price for steel bars, developers have warned that higher charges are likely to be passed on to house buyers.

But that could prove particularly difficult in one area: low-cost housing. Mr Ng said that an even heavier burden would be placed on developers if the government insists on having a ceiling price for low-cost homes, yet implement APM for cement and steel.

Malaysian developers are required to ensure 20-30 per cent of each residential development consist of low-cost homes. The price varies from state to state but averages RM42,000 - an amount Rehda has contended is too low and should be raised to RM60,000 in the light of rising material and labour costs.

Cement producers have already seen a boost to their share price since last week. Cement Industry of Malaysia (Cima) has shot up from about RM5.80 to RM7 while YTL Cement has risen from RM5.40 to RM5.85.

Is this article useful to you?