I read in facebook that even with all the new levies to cool down Penang property prices it will not do much because the major reason why the price went up is due to the costs. land costs, material costs, labour costs and also all the state requirements of Rm120,000 in lieu of low cost units etc. Some are however saying that the developers should not profit too much and should sell their properties at a lower price. Actually, we do not need to argue. Let’s look at the actual numbers as some of these bigger developers are also listed entities and their Annual Report is available for the public to see. We look at three which has exposure to the Penang property market; SP SETIA, IJM and MAH SING.
SP SETIA is listed in Bursa and its 2012 Annual Report showed a revenue of RM2.5 Billion versus its gross profit of RM567 million. This gives a gross profit margin of around 22%. This is already 20% better profit than 2011! It simply means the margin for 2011 was even lower.
IJM Land for its 2013 Annual Report stated a revenue of RM1.25 Billion versus its gross profit of RM320 million. This gives it a gross profit margin of around 25.6%. This is also 10% better than 2012.
Mah Sing’s revenue for year 2012 is Rm1.775 Billion. It’s gross profit was RM315 million. This gives it a gross profit of just close to 18%.
Surprised that the margin is not that high? Actually, if you are a developer, after adding all the usual costs and you are paying around RM350psf in building costs would you build if you have a gross margin of just 18-22%? Bearing in mind, there might be delays which you cannot control. Sales might also be slow and you are able to sell just 70% of all your units which meant that you are suffering losses if your margin is just 22%! Do not be surprised. These are the typical margins for the developers unless they cut a lot of corners in their construction. This is because the land cost, material cost and the price that the developers can sell are also dependent on whether the market can pay for it. Thus, no developers would price it so high that they may not be able to sell majority of their units.
Do not speculate. Buy what you need and what you can afford and property investment is a good investment. Be greedy once, you may be lucky. Greedy all the time meant that your luck might just run out one day. 🙂
Added on 15 Dec. A reader said if crisis happens, prices would come down. I agree.
written on 14th dec 2013
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