Saturday, 11 August 2012


Are developers really making too much?

 | August 12, 2012 0 Comments
LATELY, there have been many ongoing discussions on the topic of high property prices. It made me ponder on the various causes that might have contributed to the situation, including the question of whether developers are making too much.
As I took a sip of tea, many thoughts came to mind which I found interesting and worth sharing before we dwell further into the real factors of rising property prices.
Based on annual reports (see chart) of three major property developers in Malaysia, namely SP Setia, UEM Land Holdings and Mah Sing Group, they are generating an average of 18% profit margin from their projects, and at the same time incurring a staff cost of about 7% of their total revenue.
These companies are major developers in mass residential properties which have high sales turnover, and therefore a good reflection of the average developers’ profit margin in the residential market.
These findings may contrast with people’s perception of the profitability of the property development industry.
Though it may sound like a fantasy, assuming I could convince these three property developers to give back their entire profit to their customers, it would mean an average of 18% discount on property prices for the year in question.
This would seem like a fantastic bonanza for the buyers of the properties in question. But would a 18% discount really make these properties affordable? I would imagine that people will still find these properties expensive.
Let’s take an example of a terrace house that costs RM700,000 in Petaling Jaya......
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