The rise in compliance costs alarms property developers as it eats a portion of the gross development value (GDV) of their developments.
Compliance costs - which refer to costs spent by developers in providing facilities for public amenities and utilities in their projects - account for about 15 percent to 50 percent of their GDV. Bigger projects have lower compliance costs due to their economies of scale.
"Many people are not aware of the huge compliance costs that we absorb. When we buy a parcel of land, after setting aside land for water, power, roads and other required public amenities, we are only left with about 45 percent of our budget to build houses. We (also) don't get to build on the whole plot," said a senior property executive.
Industry players also question why for-profit, public utility entities such as Syarikat Bekalan Air Selangor Sdn Bhd and Tenaga Nasional Bhd are not required to share the compliance costs.
"We pay for the land. We then build the infrastructure and handover these facilities to the (utility) companies. These companies today operate for-profit, and are not state-owned entities. The time has come to relook at the arrangement," a developer said.
The issue will be tackled by industry players in a paper to be submitted to the office of the Real Estate and Housing Developers' Association (REHDA).
Property developers also plan to ask the Performance Management and Delivery Unit to conduct an independent study on the significance of compliance costs.
"The authorities know the cost that we absorb, but an independent study would best address the issue," said another property developer.
According to a REHDA survey, compliance cost for a project with RM100 million GDV would be around 20 percent.
Moreover, developers said that the rising compliance cost plus increasing prices of building materials poses a major challenge in boosting future earnings.
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