YOU may recall from my earlier article that was published in my column titled: “Affordable Housing: How to own it?” that the National House Buyers Association (HBA) was invited to present a paper to the Finance Ministry and we offered 10 pertinent proposals with the view towards affordable housing. This article will continue with the rest of the proposals.
Lower the cost
While developers face the brunt of complaints about the increasing prices of houses, an important cause hidden away, thus far are the utility companies. The surcharge they add to a development’s fee is something substantial to be considered when purchasing a property.
Utility companies are essentially Tenaga Nasional Bhd, Telekom Bhd, Indah Water Konsortium Sdn Bhd and water authorities such as Syarikat Bekalan Air Selangor Sdn Bhd, which were corporatised or worse privatised, versions of public utilities provided the same services for much less.
The payments they demand from developers seem to be influenced by the profits the developers make rather than their real value. It was acceptable previously when we had Lembaga Letrik Negara and Jabatan Bekalan Air where we all had a role in our legacy days in nation building. But, privatisation is a different ball game.
Privatisation, it was claimed, would see an improvement in efficiency and a better quality product, but this may not necessarily be so. They demand for ever-increasing contribution sums from developers for water, electricity, telecommunication and sewerage and refuse disposal services, and the building of infrastructure works like sub-station and reservoirs, which developers are bound to ensure are available to their purchasers. Unlike developers, there is no risk of loss to the utility companies which have to be paid in advance of sale.
Developers then factor in the utility contribution sums into the house purchase price; the “hidden costs” which developers blame with some justification.
It is a serious concern that a significant percentage of the cost of building houses is the contribution sums that they demand: for a RM300,000 house, about 5% to 10% of the purchase price is the contribution sum.
The “last mile” infrastructure should be undertaken directly by the utility companies as they are giant companies in their own right. TNB just announced “net profit up 192% to RM2.31bil” – StarBiz July 29, 2016
We unmasked the utilities’ contribution to the high costs of properties at the meeting and produced our chart titled: “Costs of Utility Infrastructure - Pre & Post Privatisation/ Corporatisation”. Readers could surf the Internet for the article titled: “Utility Companies Bump Up House Prices”.
Price control mechanism in affordable housing category
Deputy Prime Minister, Datuk Seri Ahmad Zahid Hamidi brought some good news recently in March 2016 when he announced that the Government would review the National Housing Policy where property prices would no longer be decided entirely by market forces.
He said that “the Government, via the Urban Wellbeing, Housing and Local Government, could conduct price control by taking into account elements such as location and types of houses”.
The Government’s intervention is long overdue with escalating house prices that tend to make a mockery of the slogan “affordable homes” when to the majority of wage-earners, they are not affordable.
Read the reported article titled: “Regulate profit margins for affordable homes sector, says HBA”.
Educating and protecting first-time buyers
> Information on affordable housing
Information on low-cost and middle cost homes existing, under construction, planned by the various housing providers, state economic agencies, federal bodies and funding schemes, should be made available to the public in a database.
> Single “umbrella” to coordinate distribution and availability
Has anyone make a last count of low cost units that are available in the market? Has there been overhang of such properties? Why isn’t there a single umbrella (federal) where information and data on low and medium cost units. They should be collected with the objectives to coordinate the total numbers of such units built, their location and pricing? “They must build the right product at the right place with the right pricing and the right numbers”: HBA
No racial profiling
There should be no racial profiling in low-cost, low-medium cost, medium cost or those under the category of affordable housing schemes. We must stick to the adage that “Whoever deserves a house must get a house, if his or her financial standing permits”.
> Balancing risks of homeownership policies with homeowners’ welfare
Our recommendation is intended to encourage all potential first-time low-medium cost homebuyers to attend a Homeownership Education programmes before they search for a home or sign a purchase contract. To not educate yourself and learn from the mistakes of others only sets you up to be, at best, disappointed and at worst, “house poor”.
Read my past article titled: “Helping the poor own houses” thru the link: http://www.thestar.com.my/business/business-news/2015/05/30/helping- the-poor- own-houses-they- need-to- be-educated- and-protected- too/
Rent-to- buy and transit home concept
This proposal is meant to help the lower income group who cannot qualify for a housing loan. However, the key for the success of this concept depends on the execution. For this scheme to be successful, the following criteria must be met:
(a) The property must be built at the right location at the right numbers.
(b) Must be offered to the correct target group. Strict checks to ensure that the applicant must be staying at the property and not rented out – selection criteria
(c) Rent must be affordable and all applicants must pay the rent on time in order to continue staying and eventually be offered to buy the place.
(d) No re-sale for the first 10-years after the applicant has bought the unit.
(e) Any re-sale must be approved by the government agency to ensure that the next buyer meets all the necessary criteria, i.e. must not own more than one property.
It is the aspiration of every responsible government to ensure that their citizens have a roof over their head. In recognising this, the Government has put in place many policies, including the bumiputra housing policy, to assist the rakyat in acquiring their own homes.
The policy was introduced as part of the New Economic Policy in 1970 to reduce the income disparity between the bumiputras and non-bumiputras. In a nutshell, the said housing policy required property developers to: (i) Reserve a certain percentage of their units for sale exclusively to bumiputras; and
(ii) Sell the bumiputra quota units at a discount.
HBA has no issue with bumiputra quota as it is more of a social issue and complex in nature.
The bumiputra discount has been credited by many quarters, including HBA, as the key policy which has enabled bumiputras to acquire properties, especially in the urban and suburban areas, and reduce the disparity of property ownership. However, more than 45 years after it was introduced, is such a blanket policy still relevant?
Property developers are profit-orientated entities and are not in the business of doing charity work. When a percentage of their units are sold at a discount, the price of the remaining properties will have to be marked-up to ensure that the projected level of profits is met.
Hence, this increases the cost of property ownership for non-bumiputras and invariably, bumiputra too. At a public forum, a renowned malay developer stated that, “We will not suffer losses from those sales, but merely ‘adjust the costing’ for the non-bumiputra units and to a small extent the bumiputra units.” This literally means that the sale price is invariably adjusted into the overall pricing with the cross-subsidy.
As the bumiputra discount applies to all categories of properties with no limit on the number of properties entitled to it, this policy is being exploited in the following manner:
Whilst it is understandable for lower income bumiputras to be given some form of assistance in acquiring homes, it is not acceptable when affluent bumiputras demand the same discount for luxury homes priced from RM1mil.
Due to a lack of clear guidelines, there is currently no cap on the maximum number of properties bumiputras can buy at a discount. This enables affluent bumiputras to acquire many homes at a discount, thus depriving lower income bumiputras of potential homes.
This discount policy is also being used in the buying of commercial properties.
There is also no cap on the price or number of commercial properties eligible for the discount.
Recommendation: The bumiputra discount should be fine-tuned to ensure that this noble policy reaches the correct targeted group. To prevent further abuses, HBA recommended the following:
Price cap and type of property
The discount was intended to assist lower income bumiputras acquire their own home.
Hence, there should be a maximum price cap of say, RM500,000. This price cap can be further fine-tuned from state to state and between the urban and rural areas, as it is widely acknowledged that properties in the Klang Valley, Penang and Johor are priced much higher.
Maximum number of properties
The vast majority of the rakyat can only afford to buy one property in their lifetime, and some are fortunate enough to be able to buy an additional property for long-term investment and to fund their children’s education.
Hence, the maximum number of properties eligible for the bumiputra discount should be capped at say, two.
Only private residence should be eligible
Bumiputras who are savvy enough to acquire commercial properties for business purposes cannot be considered as belonging to the “less fortunate category” and deserving of government aid.
There are various other government agencies such as Mara for that purpose. There is also Mida, which is better equipped to assist such aspiring bumiputra entrepreneurs.
HBA believes that the fine-tuning of the bumiputra discount will lead to a healthy property market and reduces cost of doing business for the housing developers. With lower pricing, it will benefit all house buyers across the board. This is on the proviso that developers will not take advantage by increasing their profits margin.
The property sector has long been considered as the catalyst of growth for the economy and it is in all our best interest to ensure that this industry is not bogged down by outdated government policies such as a blanket bumiputra discount.
Surf the Internet for the clear explanation titled: “Time to fine-tune the bumiputra discount” which was penned some three years to avoid any misconception as this issue is sensitive in nature to some.
Built Then Sell 10:90 (BTS 10:90) safeguards abandoned housing projects in the country continue to be a dampener to the hopes of many house buyers and their families from realising their dream of being owners of their own homes.
BTS 10:90 concept rightly insulates buyers from the business risks of developers and their financiers.
The Government saw it fit and just and had in February 2012 in Parliament, announced the mandatory imposition of BTS 10:90 concept come year 2015. Is the Government taking a retrogressive step by reneging on its promise?
The Government U-turn has drawn the flak and adverse criticism of the house buying public and Consumer Associations especially the victims of abandonment and victims of those unlicensed developers.
HBA has proposed a gradual “phase-in” period to make BTS 10:90 a reality. We hope the current Housing Minister will have the courage to make BTS 10:90 a reality: not just for the first time buyers but at least under the affordable category.
The proposals are by no means exhaustive but they represent the views of HBA on the present state of affairs. It cannot any longer be just business as usual.
Chang Kim Loong is the secretary-general of the National House Buyers Association: www.hba.org.my, a non-profit, non-governmental organisation manned by volunteers. He is also the NGO councillor at the Subang Jaya Municipality Council.
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