PR1MA sets realistic targets


  • Property
  • Saturday, 30 Jan 2016

People’s housing scheme expects 210,000 housing units to be completed by 2018

PERBADANAN PR1MA Malaysia, the corporation formed to address the affordable housing issue in the country, has come in for a lot of criticisms. Launched in July 2011, PR1MA, the Malay acronym for the 1Malaysia People’s Housing scheme, was incorporated under the PR1MA Act in 2012 and became operational in March 2013.

The chief failure, according to critics, is the slow delivery of affordable housing units. Since becoming operational, it has delivered under 1,000 units from the planned 500,000 under its mandate.

PR1MA chief executive officer Datuk Abdul Mutalib Alias (pic) acknowledges that the corporation has not been very good at communicating to stakeholders and the public on the reasons for the slow delivery. He says landbanking, developers’ margins and approvals are some of the issues that the corporation has to contend with.

Abdul Mutalib tells StarBizWeek that the misunderstanding has come about as the public thinks PR1MA will have 500,000 units delivered by 2018. In reality, this is far from the case. The corporation has set a target of 240,000 units for board approval, of which 97% comprising 232,807 units have been approved.

Abdul Mutalib says a more realistic target will be the completion of some 210,000 units by 2018.

Industry experts say that having a more supportive infrastructure to develop affordable-housing projects such as tax incentives could also help as private-sector developers will be more willing to allocate more land for such projects.

This is because such projects have lower margins than the high-end or luxury projects. According to Bina Puri Holdings Bhd group executive director Matthew Tee, the margins for affordable-housing projects are usually in the 8% to 10% levels versus the mid-teens onwards for high-end projects. Bina Puri, a construction firm, was recently awarded a RM230mil contract to build 994 apartments in Plentong, Johor by PR1MA.

Affordable housing continues to be an acute problem, particularly in highly-urbanised locations such as the Klang Valley, George Town and Johor Baru. To that effect, under the revised Budget 2016, the Government has mandated that only first-time housebuyers can acquire properties priced below RM300,000.

To reach out to more people, roadshows known as Integrated House Ownership Expo Roadshows offering houses under PR1MA, National Housing Department, Syarikat Perumahan Negara Bhd (SPNB), Perumahan Penjawat Awam 1Malaysia, state agencies and pricate sector, will be organised.

Suitable land and location

Abdul Mutalib explains that the process to acquire suitable land has been challenging. PR1MA works with the federal and state governments to identify land that can be developed for affordable housing.

While support from the authorities have been forthcoming, he believes that speeding up the process in identifying and allocating suitable locations for PR1MA housing will help.

“I wouldn’t say this is a core concern, but it would definitely help in that sense.

“For the ministries to release the land, they have to get replacement land, which is not easy. I understand their position as well,” Abdul Mutalib says, adding that several states have also been forthcoming but the land identified has not been suitable due to the location, which can be far from the urban areas.

He says it’s a long process for the ministries to release the land to PR1MA as the landbanks have been selected for other projects. Abdul Mutalib observes that if funding for projects were not forthcoming, then the ministries would rather hang on to the land rather than give it up.

“I’m looking at the homeowners as travelling will be an issue. If you put them far away from the city, they have to spend more,” Abdul Mutalib says, adding that it’s not been easy despite the seemingly willingness of the federal and state governments to work with PR1MA where desirable landbank for development is concerned.

One example is the search for suitable land owned by the federal government. “In 2012, we worked closely with the director-general of lands and mines to find suitable land. There were 1,600 acres of federal land allocated to us. However, what was eventually given to us was 108 acres after one year,” Abdul Mutalib says, who points out that only 47 acres of land was suitable for development.

Another hurdle comes from the state govermments. While several states have been helpful, approvals have been slow, for starting projects and also for suitable land identified for affordable homes. Abdul Mutalib says location is important but state governments often allocated land in areas where they have plans to urbanise but these areas are often far from amenities and transportation links. “We’ve to focus on the homeowners,” he says. “Our survey shows they want to be close to schools, have access to transportation, close to clinics and shops. So every developer that comes in, we tell them we need this.” Abdul Mutalib says. One region where there is an acute shortage of affordable housing is Kuala Lumpur. Abdul Mutalib says there are plans for a township project in the southern corridor of the Klang Valley. “We already have one proposal for a project in the south of Kuala Lumpur that is currently under discussion,” he says, noting that the future Bandar Malaysia mixed development project has an affordable housing element.

To expediate the process, PR1MA has also gone into joint ventures with private-sector developers. These joint ventures can involve either PR1MA buying the land from the developer or PR1MA offering contracts to developers to build the homes.

Abdul Mutalib says this option also assures that there will not be any future “crowding effect”, that is, the concern that private-sector developers who want to build affordable-housing units are squeezed out of the market. He says buying the land from the developer also means that PR1MA takes over the market-risk in developing the land.

Association of Valuers, Property Managers, Estate Agents and Property Consultant president Datuk Siders Sittampalam says it is impossible to build affordable homes in Kuala Lumpur due to the increased land costs, adding that it is best to segregate PR1MA housing units between 10% and 20%.

Margins

PR1MA still has its work cut out in convincing private-sector developers of the value of building affordable homes. Abdul Mutalib admits it has been a challenge to initiate talks with them. Margins are lower for affordable homes and developers already have other costs to bear. This is on top of high land prices and rising construction costs. Margins have an impact on costs, which has an impact on the pricing.

Abdul Mutalib recalls reaching out to the top 10 developers with their senior management coming for the meetings but at the end, nothing came of it. Again, commnunication was lacking so PR1MA went on roadshows and worked with the Real Estate and Housing Developers’ Association to explain how PR1MA works.

It was after all these roadshows that developers started to take an interest. More than 900 proposals have been received to date but only 167 have been selected.

Abdul Mutalib says the process is slow going because of pricing. “For single-storey homes, we are targeting below RM200,000. Anything above that price range, I’m not interested,” he adds.

Siders says another way of convincing developers is to offer them a lower conversion premium for their land. He says this can mitigate the cost-factor for their affordable homes.

Abdul Mutalib says deveoping affordable homes in Sabah and Sarawak can be challenging since construction costs are higher while potential house buyers’ affordability threshold is lower. He says the Sarawak government’s allowance for higher housing density has been helpful in convincing developers to come up with proposals.

However, Abdul Mutalib says that in the current market conditions, there have been more enquiries about affordable homes built by PR1MA over so-called mid-priced properties offered by developers. The prevailing sentiments has also forced developers to adjust their pricing lower.

Bina Puri Holdings Bhd executive director Matthew Tee says building affordable homes does not give lucrative profit margins, adding that the Government should provide incentives to encourage developers.

Bina Puri has secured a contract worth RM230mil under PR1MA affordable housing scheme to build 994 apartments in Johor Baru.

Siders points out that private developers will initiate building affordable homes if sufficent incentives are given by the Govrnment due to increased land costs.

“If you are a large township developer and you are imposed many conditions, there are statutory payments for the developers which are built into the cost of development. “There is no way you can make profit from selling affordable homes after these costs are incurred,” he adds.

Approvals

Aware of the urgency, Abdul Mutalib says those projects that have been approved will be quickly started but the pace of approvals can and will cause delays. “These are factors beyond our control, we hope the states will be more understanding to give us fast approvals. The faster we get approvals, the faster we can start construction,” he says.

PR1MA considers the pace of approving development orders and building plans as its main challenge.

“The challenge is always the approvals that we have to go through. There are so many layers,” Abdul Mutalib says.

Siders also says that the various states have their own criteria and that can sometimes cause problems for developers. He says land is a state matter but there could be ways in which the stakeholders can work together to expedite approvals.

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