Property prices, which rose 8 per cent in the first quarter of this year, will continue to head north, as developers pass on the rising cost of building houses to buyers, according to Credit Suisse.
But higher selling prices does not necessarily mean bigger profits for developers with Credit Suisse noting that developers' cost of doing business has reportedly risen 20 per cent in the first half of 2014.
"Margins are being compressed," it said in a sector report on Monday. The firm is negative on the sector.
Property sales, especially in the affordable category, had slowed since the start of the year with measures to curb speculative purchases dampening sentiment in the property market.
The report indicated that the Government was considering additional measures to cool down rising prices with specific plans to address the issue of affordable housing.
Credit Suisse said it believed that measures to facilitate home ownership among the lower and middle income groups such as allowing developer interest bearing schemes for first-time house buyers or those below a certain income level, would be positive for the market.
"However, a blanket policy to stop the rise in property prices would be negative as sentiment is already so low," it added.
According to the Real Estate Housing Developers Association's first half of 2014 property industry survey, a majority of developers are either neutral or negative about the outlook for the second half of 2014.
This sentiment is expected to carry through to next year, with only 13 per cent of respondents optimistic about the outlook in the first half of 2015. Developers have been holding back new launches this year, with only 39 per cent of respondents launching in the first half compared with 52 per cent a year ago.
Take-up rates fell to 49 per cent in the period, the first time it dipped below the 50 per cent level.
The main reason for slower sales was the difficulty for buyers in securing financing. Properties priced between RM250,000 and RM500,000 saw a 30 per cent rejection rate, while properties prices between RM500,000 and RM700,000 experienced a rejection rate of 24 per cent.
Additionally, growth in housing loan approvals has slowed since December 2013 and fell 13 per cent year-on-year in July 2014. For the first seven months of the year, total housing loan approvals were up only 1 per cent year-on-year at RM68bil.
But despite the soft market condition, Credit Suisse said it believed that prices would continue on an uptrend next year as input costs are pushed up by the Goods and Services Tax (GST).
"Residential properties are GST exempt, but developers would look to pass on the higher costs via higher launch prices," it said.
