Malaysia needs an affordable and well-coordinated housing policy

  • Business
  • Saturday, 21 Oct 2017

Establish a single authority to streamline a smoother and more efficient provision of affordable homes

THE rise in house prices has generally outpaced the increase in income level.

This has led to a mismatch between the type of homes being built and demand. The situation is further compounded by a buoyant and liquid market between 2012 and 2014, when developers clearly focused on the higher-price end of the residential market.

Between 2012 and the first half of 2017 in the Klang Valley, of the total 44,776 houses launched, only 660 houses, or 1.5% were priced below RM300,000.

In the high-rise residential segment, 25,491, representing 10.9%, out of 234,331 units launched, were priced at below RM300,000. The percentage representation of these “affordable” apartments and condominiums has been on a declining trend since 2015.

One of the federal government’s main agendas is the provision of adequate, affordable and quality homes for all, particularly the low-income group.

In the long term, the government’s push for home ownership is expected to improve Malaysia’s overall economic, social, and political stability. So far, however, the ambitious targets of numerous “affordable home programmes” have generally not been met for several reasons. Some of the reasons being the identification of suitable land, high land values, land acquisition problems, approvals being slow and the often uncertain and ambiguous relationship between the various governments at local, federal and state levels.

With varying eligibility criteria for purchasers, there are nine principal affordable home programmes in Malaysia (see table on page 16).

The wide range of targets and purchaser eligibility, selling prices, types of homes and various conditions placed on purchasers are considered to be confusing for the public.

There are also different thresholds for the price of affordable homes. The government, for example, has a threshold of RM300,000, while some professional associations use RM400,000 or even up to RM500,000. As mentioned earlier, there are very few properties priced RM300,000 and below.

Despite factors like location and land cost for a particular project, Jones Lang Wootton (JLW) thinks the government should create a clear, centralised and efficient national index clearly defining affordable homes and their prices.

The household income level to qualify ranges from as little as RM3,000 to RM15,000 per month with the middle income levels being under the PR1MA and RUMAWIP programmes. The proposed selling prices for all affordable homes range from RM50,000 (MyHome 1) to RM400,000.

The higher prices are within PR1MA, RUMAWIP and PPA1M. Furthermore, most of these programmes have a moratorium period, of either five or 10 years. This is very important in order to prevent speculation, keep prices in check and to ensure that the households meant to benefit from the various programmes do so.

On this point JLW has concerns regarding the policing of these conditions and whether there are any loopholes in the system. JLW suggests a central “check and balance” system should be implemented to ensure there is no abuse of the conditions.

In terms of challenges, most programmes require a purchaser to make a 10% downpayment, so prospective purchasers need some capital upfront together with an approved loan in place.

Research indicates that the loan rejection rates for affordable homes are usually high e.g. Rumah Selangorku and PPA1M register an approximate 50% rejection rate due to the high debts of applicants.

At this juncture, it is important to recognise that financial institutions continue to provide financing to eligible borrowers and only reject those who are already over-extended in terms of their ability to take on more debt.

The affordability factor is a major concern for potential home buyers as many are young, first time buyers find it difficult to buy a house within their budget. The escalating cost of living also means that potential buyers have to prioritise essential consumption/expenses rather than repay relatively expensive home loans.

Having implemented so many affordable housing programmes, the government has shown considerable efforts to tackle the affordability problem and help the lower income group. JLW believes more people need to be better educated about home buying. They need to properly plan their personal finance in order to buy a home in the future.

Based on a survey carried out by JLW Research, the majority of successful purchasers for Rumah Selangorku, RUMAWIP and PPA1M homes were aged between 25 and 40 years old and first-time home buyers with an acceptable credit rating, fitting the profile of a “young family”.

As for end-financing, Bank Negara has introduced prudent measures to deter speculative activity in the housing market and to avoid people borrowing beyond their means.

A central body could also ensure that homes are affordably priced. It could promote and encourage financial prudence and forward planning and inform buyers how to manage mortgage loan matters, and sustain their monthly payments over the loan period.

The main challenge for the government is to reduce the “affordability gap”. This is possible if the government and private sector work in unison, under the public-private initiative, and adopt mutually beneficial, innovative and targeted policies. JLW is of the view that the government, for example, may need to be more flexible in terms of making suitable government land available for joint-venture projects.

Under RUMAWIP, for example, in order to attract private developers to construct affordable houses, local authorities like DBKL, Perbadanan Putrajaya and Perbadanan Labuan may consider offering incentives such as approval of higher density if this is supported by adequate infrastructure and accessibility.

Other incentives include discount or exempt premiums for land and development. In addition to these “sweeteners”, the government could offer tax incentives, such as a tax exemption on profit to encourage a larger development pipeline.

Furthermore, cost effective supply side initiatives could be used to drive productivity via increasing the use of technology, updates on construction methods, adopting the Industrial Building System (IBS) and using effective construction business models.

These initiatives should be explored as IBS method is nothing new. However, it is rarely used in Malaysia whereas Singapore’s Housing Development Board (HDB) has been using prefabrication technology since the early 1980s.

Moving forward, a well thought-out strategy of policy interventions and alignments is needed to make sure that households of varying income groups can afford to buy a home. This requires both the government and private sector working together. Thus, JLW would like to encourage the introduction of transparent, sound and coordinated public policies and the possibility of establishing a single authority similar to Singapore’s public housing authority.

Furthermore, the setting up of a central organisation or agency would streamline a smoother and more efficient provision of affordable homes. This “one-stop centre” would no doubt be able to improve economies of scale, maintain a central database monitoring/managing demand and supply, household income trends and also do research in order to support viable options to address the affordable housing challenge.

It could also help to reduce development costs and duplication of processes, and to increase the speed and scale of delivery.

Malathi Thevendran is Jones Lang Wootton executive director and David Jarnell, senior vice-president.

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