Real prices needed in primary property market

  • Property
  • Wednesday, 18 Sep 2019

Siders: There has to be price discovery and transparency in the market.

KUALA LUMPUR: There is an urgent need for real and actual house prices to be quoted in the primary market unlike the current practice where only the developer and the buyer are privy to the actual price as a result of various rebates, discounts and freebies being given, say valuers, property real estate personnel and researchers.

“There has to be price discovery and transparency in the market, ” said Datuk Siders Sittampalam, who was moderating at the Housing & Valuation Conference 2019 organised by the Malaysian Public Sector Valuers Association.

“There is no law or mandatory requirement for the primary market to reveal the actual price, ” said Siders.

He said developers are giving discounts, rebates and other forms of freebies which are imputed into the price of the house.

In the sale and purchase agreement, the “headline price” may be RM1mil, but the actual price after deducting the freebies may be RM800,000. The buyer then seeks a loan based on the RM1mil instead of RM800,000.

Siders said this situation has been ongoing for quite some time now and is unhealthy, as there is no real price discovery. Only the developer and the buyer know the real price.

Siders said there should be laws introduced to govern this current practice.

In the event the house buyer defaults on his mortgage and the bank decides to go for an auction, the bank would not get the price it had based the loan on, Siders added.

This impacts the bank and the overall banking system because the banks are in danger of “not seeing their collateral mortgaged sum, ” Siders said.

Other than impacting the banks and lending institutions, this practice also distorts the market because the actual price of the house is RM800,000 and not RM1mil.

Panel speaker and valuer Elvin Fernandez said new housing -- or the primary market -- makes up 20% of housing transactions, while the secondary market where buyers deal directly with house-owners makes up the remaining 80%.

When this lack of transparency takes place in the primary market, the secondary market is also affected because house-owners would then base the price of their house on the current prevailing market price, without realising that the house is not RM1mil but RM800,000. Prices would keep going up unrealistically.

Besides the lack of price transparency, the seminar also highlighted the importance of market and feasibility studies, which were required for about six months by Bank Negara after the 1997/98 Asian Financial Crisis, but which was not followed through.

Association of Valuers & Property Consultants In Private Practice president Michael Kong said: “A market study involves surveying the other projects within a 10km radius of the developer’s planned project. It takes into consideration the existing supply, the take-up rate of projects within that 10km radius and the incoming supply and other factors. This gives the developer an idea whether they should build or not.

“A feasibility report studies the gross development value (GDV) and gross development cost (GDC). Is the GDV and GDC in line with the industry within that 10km radius?

“At the end of the day, is the project feasible or not?” he said.

Kong said that part of the country’s property dilemma today is due to the scarcity of this research, which is very important to any developer.

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