Prices will go up


If Budget 2014 does not contain substantially more public housing projects, then the price of low-cost houses will skyrocket.

YOU know a topic is hot when it is even talked about at funerals.

While at one recently, I overheard several people discussing house prices.

Of late, it seems almost everyone is either astonished at new launch prices or lamenting on low affordability. Over the last two years, house prices in Sarawak have on average increased by about 20%.

The average house price today is RM314,000, demonstrating the scarcity of low-cost units.

It also shows how unrealistic government imposed price ceilings are (more on that later).

Public housing is in short supply while demand is driven by job creation, urbanisation and migration.

Analysts have also looked at the high birth rate in the 1980s, decreasing age among first-time house buyers and artificial land scarcity due to native land laws as reasons for the steep increase in recent years. Funds for public housing almost exclusively depends on the Federal Government, but the Federal Government has not funded much public housing in Sarawak.

For instance, under the People’s Housing Programme, just 2,847 units will be built in Sarawak over the next three to four years.

That’s a small amount compared to demand.

Existing public housing projects have waiting lists that contain two to three times more applicants than there are units.

Because of the lack of Federal funds, the state government has shifted some of the burden of creating low-cost housing to the private sector.

Under state rules, all new housing estates larger than 10 acres must contain 30% low-cost and low-cost plus units. These type of houses cannot cost more than RM80,000 each but the private sector has for years complained building costs are more than double.

The state government has not relented and insists the policy is a form of corporate social responsibility but the intention, while good, has not yielded intended results. There has been immense complications and side effects.

The first occurred right off the bat.

Private developers offered upfront “renovations” for low-cost and low-cost plus units in order to boost prices. The practise led to houses sold with “supplementary agreements”.

Although the state government has deemed the practice illegal, it is nonetheless expected to announce an exemption for more than 2,000 units soon. Developers are also mitigating the high cost of the 30% requirement by “cross subsidising” with medium and high-end houses, boosting prices across the board.

A side effect of the policy is the slow adoption of green developments. This is because developers have been dealt with the constraint of fulfilling the 30% requirement.

Margins that could have been used to innovate are instead being used to build bare bones low-cost units. Visitors at last weekend’s Sarbex 2013 Total Living saw few exhibits highlighting green elements.

This is a shame because the private sector is always better at driving advancements. Right now, it simply cannot because the Federal Government is not building enough public housing. The private sector has been asked to fulfil a basic need rather than to innovate.

In next month’s Budget 2014, if the Federal Government does not announce that it will build significantly more affordable housing, then you can expect the Sarawak government to lift low-cost and low-cost plus prices ceilings. The state government has already said it is retooling the existing policy.

It knows the private sector cannot comply due to valid reasons. The state government itself understands the burden of building affordable housing.

It knows that even government-linked companies (GLCs) have not proceeded with public housing projects that have already been announced. An example of this can be seen in Jalan Sultan Tengah, midway between Santubong and Kuching. There lies a giant piece of vacant land meant for public housing that has been idle for years.

When GLCs have turned its back on public housing projects, how can the Government have the upper hand over the private sector?

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