06 July 2014

Closing the housing affordability gap

  06 July 2014

THE sharp jump in the prices of houses in the last two years has created a generation of Malaysians who cannot afford to buy their own property and the situation can potentially worsen if nothing is being done to close the housing affordability gap.

Property consultancy Knight Frank Malaysia managing director Sarkunan Subramaniam says the impending implementation of the Goods and Services Tax (GST) from April 2015 is causing a lot of uncertainties in the property market. Although residential properties that are for sale, purchase and rental will be GST-exempt, he says the higher development costs may be passed onto purchasers in terms of higher selling prices.

“While the slew of cooling measures have moderated the price growth of houses, the GST will further widen the gap between affordability and price.

The rise in prices is possibly going to be higher than the actual GST of 6% due to the uncertainties surrounding its impending implementation,” Sarkunan warns. Another barb in the market is the potential hike in the overnight policy rate which will further dampen the market, particularly among the low and middle-income earners who will be affected by a drop in their purchasing power.

Pointing out the plight of these “homeless generation” of Malaysians, the National House Buyers Association (HBA) urged the Government to play a more proactive role to help these disadvantaged Malaysians to afford their own home.

HBA secretary-general Chang Kim Loong says the Government needs to implement a holistic housing programme to build more affordable homes to help close the gap of inadequate supply of such housing units.

”Where supply of affordable housing is concerned, the Government has to play a proactive role to build affordable medium-range housing on its vast land bank instead of using them for high-end lifestyle projects and commercial projects like what is happening now.”

Chang says although the Government has set up PR1MA as the agency for this purpose, “HBA wishes to express its deep disappointment with PR1MA as it has deviated from its original noble intention to provide affordable housing by going into lifestyle properties and commercial projects.”

“We were told that PR1MA has entered into joint ventures with private developers (which are obviously profit-driven) where we understand that only 40% of the land bank is alienated for affordable properties with the balance 60% for commercial and high-end residential properties,” he points out.

Chang says PRIMA and the other federal and state agencies should stay dedicated to principally meeting the affordable housing needs of the people instead of venturing into lifestyle high-end projects.

Towards this end, a holistic housing solution that will ensure a more equitable and sustainable housing market for Malaysians needs to be adopted to ensure a sustainable and orderly housing market in the country, Chang stresses.

Concurring with Chang, DTZ Nawawi Tie Leung Sdn Bhd executive director Brian Koh says the Govenment has to play a larger role not just in the low cost but middle segment of the housing market that is ignored by private developers, such as in Singapore where the housing units build by the city state’s Housing Development Board comprise a high percentage of the total housing stock.

Knight Frank’s Sarkunan says that during the current challenging times, developers need to be more balanced in terms of their pricing strategies by not overpricing their products and to provide purchasers a scope to enjoy potential price appreciation when the property projects are completed.

Planning controls

“There should also be better planning controls where project approvals and launches need to be monitored to ensure there will be no over-building, particularly among foreign developers who are less well-versed with the local market.”

Sarkunan cites the example of Iskandar Malaysia where the launch of large-scale apartment developments by foreign developers there are unprecedented in Malaysia, adding that the completion of this huge incoming supply in the short to medium term is expected to put further pressure on the secondary sales and rental market of condominiums in Iskandar Malaysia due to high-level of foreign ownership and weak occupational demand.

He reminds developers, bankers and other stakeholders to play more responsible roles to ensure that the gap between supply and demand is manageable, to be socially responsible, and to build communities instead of just being profit-driven.

Khong & Jaafar Sdn Bhd managing director Elvin Fernandez says the model of insisting on low-cost housing in township developments has produced up to 30% of housing being low cost, “notwithstanding the inequity because the cross subsidy for such housing was from the higher end house purchasers from that same scheme.”

“But in many instances the built units are poorly managed and this needs to be urgently addressed. There is certainly a need for more affordable houses to cater for new households but to put together the land at the right prices and to execute such projects are not easily accomplished. A continuously refined national plan and one which is highly transparent and that focuses on the interests of all stakeholders and translate plans to reality is needed,” he says.

On the role private developers can play, Fernandez says developers should be allowed to do what they do best which is to identify opportunites, buy the land at the right prices, assemble and maintain a good development team, read the market as accurately as possible, shoulder all risks and deliver the products to the consumer.

“Imposing undue conditions and onerous burdens on developers is not the way forward. This does not mean that an overall policy should not be made and be effectively implemented to ensure that, for example, excessive speculation that was engendered under the developer interest bearing scheme could not take permanent root, pricing that was clouded by incentives and that were not transparently computed be shown to buyers and investors, and lending institutions do not misdirect the market, and there is always equal and fair access to all buyers,” he adds.

CB Richard Ellis Malaysia executive director Paul Khong says developers, in their approved development orders, have to abide by the condition for medium cost (affordable) category developments which they are required to build.

“The authorities may want to accelerate the construction of these affordable housing units to fill the demand, rather than looking for new measures to implement,” he notes.



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