First time home buyers who are daunted by soaring prices of residential properties in the Klang Valley should not wait in the hope of a softening in the property market.

Prospective new home buyers may want to take note of rising construction costs that are driving up property prices, as well as possible further interest rate hikes in view of the consumer price inflation hitting a 22-month high of 2.9% in February.

On Wednesday, SP Setia Bhd president and chief executive officer Tan Sri Liew Kee Sin said he expected home prices to rise by at least 10% this year, depending on location, to reflect higher construction costs.

“Property prices will not drop as the costs do not allow this anymore,” said Liew during the Invest Malaysia 2011 conference in Kuala Lumpur.

Meanwhile, a recent report from Hwang DBS Vickers Research says that as a proven inflation hedge, property should remain in demand even with potential interest rate hikes.

The report says while it is believed that the 70% loan-to-value cap managed to cap speculative activities to a certain extent, strong underlying demand from first-second home owners and upgraders has continued to support recent property sales, even at new benchmark prices.

The 70% loan-to-value ratio satisfies Bank Negara’s ruling (announced last November) which requires buyers of third and subsequent residential properties to fork out 30% downpayment.

Also, a recent survey by the Malaysian Institute of Economic Research (Mier) on residential property in the country says an astounding 61% of housing developers who responded to the survey had adjusted their prices of their residential properties upwards in the first quarter of this year – the highest proportion garnered since the third quarter of 2008.

None of the respondents in the survey had lowered their prices.

However, the Mier survey report concludes that pressure exerted by high costs of raw raw materials, fears of rising oil prices, and the interest rate factor could all combine and impact negatively on the sector in the coming months.

“This is likely to impinge on the future growth of outlying areas, and may also dampen the revival process of developments

that are currently suffering from low take-up rates, low population inflow and an overhang problem,” said the report.

SOURCE: The Star