Higher Construction costs from fuel hike

By Lam Jian Wyn of The Edge Malaysia

Friday, 16 July 2010

KUALA LUMPUR: The recent fuel subsidy cut will result in higher construction costs leading to possibly higher property prices, said industry players.

Expressing its concern over the subsidy cut, Master Builders Association Malaysia (MBAM) secretary-general Yap Yoke Keong said the move could result in more expensive building materials due to an increase in transportation rates.

"Five sen out of RM1.75 may seem like less than 1%, but the effect is hard to gauge because of the varied building material production methods," he told theedgeproperty.com on Friday, July 16.

"Some companies that engage in the transportation of building materials may use the recent fuel hike as a reason to revise their transportation rates upwards," he added.

Meanwhile, certain manufacturers of building materials who are dependent on liquid petroleum gas (LPG) and diesel for fuel may also hike their product prices, he added.

"Stable prices of building materials are important for contractors to secure jobs because we need to know the prices when we are bidding for jobs," he said.

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He also noted that some additional costs during construction could also be incurred during construction as the diesel price increase could raise the cost of running some diesel-fuelled generators on-site. MBAM also hopes the Government would consider giving at least 6 months notice before effecting any price increases in future so that the construction industry can adjust to the changes and the impact on the construction industry can be minimized.

Meanwhile, Real Estate and Housing Developers' Association of Malaysia (Rehda) president Datuk Michael Yam the government's move to remove subsidies will lead to a gradual trend of price increases that will be reflected in construction and other costs.

Yam said ultimately, the price increase would be passed on to consumers including in the property sector that is serviced by more than 140 other services and supporting industries that will also pass on their costs to consumers.

The government had raised prices of sugar and fuel overnight with new prices taking effect on July 16 as it seeks to cut back on subsidies, with the move reportedly expected to save RM750 million a year.

Sugar prices have been raised by 25 sen to RM1.75/kg, LPG by 10 sen to RM1.85/kg, RON95 petrol by five sen to RM1.85 per litre while diesel prices have been upped by five sen to RM1.75/litre.

The government said the move was necessary to achieve developmental targets and promote healthier lifestyles. Nonetheless, it said it will still need to spend RM7.82 billion on fuel and sugar subsidies this year.