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Cement Prices and Housing Affordability

Article · August 2019

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 theSUN ON FRIDAY | AUGUST 2, 2019 17

Cement prices and housing

PROPERTY LISTINGS
in Johor
Project: Calidora
Type: Double-storey cluster homes

affordability
Price: From RM921,800
oUnderstanding the landscape of Developer: SP Setia Bhd

Malaysia’s cement industry Located within the 24-hour gated and

guarded Setia Tropika township, Calidora
comprises 72 units of double-storey homes
CEMENT production in Malaysia is with built-up areas of 2,420 sq ft each. The
highly concentrated, in which homes are catered to young families,
three of the eight cement upgraders and Johoreans who commute
manufacturers across the country frequently between Malaysia and Singapore.
account for about 70% of the It is located next to the North-South Highway
production capacity share. with a designated outlet, Exit 255B while
Majority of these manufacturers Kempas Medical Centre is 5km away. The CIQ
are vertically integrated with ready- Checkpoint and Johor Bahru city centre are
mixed concrete manufacturing, 12km away while the Senai International
precast concrete products Airport is an 18km-drive away.
manufacturing, and possess their
own building materials’
distribution arm.
The industry saw further
consolidation when YTL Cement
Bhd acquired Lafarge Malaysia
Bhd in May 2019, creating a market
leader with capacity share of over
60% in Peninsular Malaysia. The
biggest concern here is the surge in
cement price that will spark a chain
reaction in the construction and
property development industry,
leading to a rise in property prices. (Source: CIDB, NAPIC)
Cement price hikes have been observed Figure 1: Pricing trend for 50kg bag cement, bulk cement, and residential housing
since May 2019, which is the bandwagon effect Project: Avira Garden Terraces
happening among cement manufacturers as resulting construction cost and house price will seemingly plagued by the price war among Type: Double-storey terrace houses
they tend to follow the market leader when it increase by 17% and 8.4% respectively; which is major players, causing a race to the bottom in Price: From RM459 psf
changes its prices. However, this should not be relatively lesser than expected. terms of cement prices in the last few years. The Developer: Eastern & Oriental Bhd
treated as the sole reason of rising house prices, Moreover, the simulation is based on the recent withdrawal of cement rebates was seen
due to little evidence correlating the fluctuation worst case scenario basis, with the assumption as a move towards a much closer cement Phase 2 of Avira Garden Terraces offers 70
of cement prices to house prices. that all cement-related materials prices rise by controlled price for the long term sustainability units with built-ups from 2,290 sq ft which
Although cement price has been trending 40%. In actual practice, the respective price of local cement companies. are slated for completion by end-2019. The
downward in the past few years, property prices increases could be much lower, averaging As mentioned by the Cement and Concrete homes were designed to seamlessly integrate
continued to climb instead. Between 1Q 2014 between 3% and 5% of the total cost. Association (C&CA), the rise of cement prices nature, complemented by linear gardens and
and 1Q 2019, prices for a 50kg bag cement and Cement users have misapprehended the since May 2019 was more of a price adjustment lush greenery, and is part of E&O’s efforts to
bulk cement fell with a CAGR of 8.27% and cement price hike. They even inculpated made by local cement manufacturers with the create a holistic, thriving environment for the
12.26% respectively; which is in contrast to the cement manufacturers for the recent price hike aim of restoring cement prices to a more community. The homes are located within
CAGR 5.7% rise in house prices during the same without government approval under the reasonable level, to ensure the survival of the Avira, a 207-acre project in Medini Iskandar
period (Figure 1). Control of Supplies Act. cement industry as declining cement prices Malaysia’s Flagship Zone B, with close
To better understand the impact of cement- However, many may not be aware that hefty have reached levels that are lower than proximity to Legoland, Puteri Harbour Theme
related cost on house price, the following cost cement rebates have been given by the cement operating costs. Park, EduCity, Pinewood Iskandar Malaysia
simulation is conducted (Figure 2). Assume that manufacturers, which is way below the If things do not improve for the loss-making Studios and the Gleneagles Medini Hospital.
400 units of 900 sq ft average standard government controlled price. For instance, in cement companies, more industry players
apartment with a RM300,000 per unit price tag terms of 50kg bag PCC cement, rebates given by would exit the market. The country would then
are to be constructed on five acres with land YTL Cement ranged from RM3 to RM10 depend more on imports like in the past, which
price of RM130psf, which is subject to the throughout the period of 1Q 2018 till 2Q 2019. would expose us to more market volatility and
density of 80 units per acre. For bulk cement, it was reported that rebates risks that are detrimental to a developing
As one can observe, building cost makes up were as high as RM140 to RM150 per tonne with country like Malaysia.
77% of the total construction cost, which is 49% an average selling price of RM360 per tonne. Having said that, the present study does not
of the total selling price. Cement-related cost is Malaysia has been experiencing an aim to underestimate the impact of cement
mainly reflected in the construction of oversupply of cement since 2011. Supply price hikes. Note that cement price is not
substructure and superstructure, which exceeded demand due mainly to the slowdown controlled and every cement company can set
comprises 16% and 46% of the total building in the construction sector following the its own prices.
cost respectively. cancellation of several mega projects, and the The message of this study is that the
In this sense, the equivalent cement-related expansion of manufacturing capacity in government should strike a balance between
cost is 5.9% (RM17,925/RM300,000 X 100%) of anticipation of stronger domestic demand the mega projects in the pipeline and the
the unit selling price. If cement prices rise 40% growth. sustainability of cement companies, by
as claimed by industry stakeholders, both the Consequently, the cement industry was considering a gradual cement rebate Project: Aspira ParkHomes
withdrawal towards Type: Double-storey terrace houses
the emergence of a Price: RM599,000
controlled cement Developer: UEM Sunrise Bhd
price before
considering the Aspira ParkHomes Phase 2 offers homes sized
next round of from 1,931 sq ft to 2,012 sq ft, designed with
government- an urban green living concept with urban
controlled price farms, herb gardens, verdant parks and
uplifting. community facilities. Future primary, private
As the price and public secondary schools have been
adjustment could planned within a 10-minute walk from these
be regulated when homes, complemented by low-density
necessary, other commercial and lifestyle hubs. The freehold,
government gated and guarded development is part of
intervention such Gerbang Nusajaya in Iskandar Puteri.
as a subsidy could
be an alternative
option to minimise
the overall
economic impact.

This article was

contributed by
MKH Bhd general
manager of building
materials Brandon
Loo and manager of
product research &
(Source: MKH Bhd) development Dr Foo
Figure 2: Cost structure of a typical apartment unit @ RM300,000 Chee Hung.

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