Developers are warning that they are struggling to cope with higher costs which they are having to pass on at a time when demand is already slowing because of the global credit crunch.
Prices increases in fuel and power charges are pushing up costs by as much as a third but developers say they are hopeful interest from India, Pakistan and Russia will keep the market moving forward.
'If developers increase their prices by a third in the current climate it may be difficult to sell,' said Regroup Associates managing director Allan Soo.
Regroup's Klang Valley Housing Property Monitor, which keeps track of the secondary market, showed a slight decline even in prime areas. Compared with 2007, when foreigners bought up almost everything available, Mr Soo said this segment all but evaporated in the first quarter of 2008.
However huge price increases are not inevitable and location is the key to whether developers can ask higher prices, according to the Real Estate and Housing Developers Association (REHDA). 'Just because the cost of materials goes up does not mean the price of homes will also go up,' said chairman Ng Seing Liong.
But the outlook for the second half of this year is uncertain, he added. Local demand has waned and most developers will just have to accept lower profits, it is believed. There are concerns, however, that smaller builders without strong reserves may not survive.
Although interest from foreign buyers from traditional markets is falling the real estate industry remains confident that a surge in interest from other countries and from institutional buyers should help sustain the market.
