Commentary Economics

Why cheaper housing may remain a distant dream


Written by TheMole

By Salahuddin Hisham

October 26, 2017

AS the cost of land acquisition rises, the property market has been forced to realise that the term low-cost housing is no longer practical. The more realistic term today is affordable housing but it remains a challenge to provide this type of dwellings.

High rise condominiums and apartments, which are selling at prices once  of landed bungalows and semi-detached houses are in great demand.

Landed homes in posh areas of Bangsar, Damansara Heights, Taman Tun Dr Ismail, et al are being snapped up by foreigners. It is heard a Singaporean bought a home in a pleasure trip to Kuala Lumpur and paid the sum in full on the spot with a casual signing of single cheque.   

It seems good for the property market and the players, but the Klang Valley and surrounding areas  including Kuala Lumpur and elsewhere in Penang and Johor Baru need to be populated by all segments of the socio-economic class. The city centres cannot be the exclusive domain of the well-to-do.

It is not practical for the lower level occupation to be filled by those with public homes for the poor in far away areas like Rawang and Seremban. Who are to man the shops, petrol stations, and eateries?  

For Kuala Lumpur and the Klang Valley that attract the most and fastest rate of migration, Datuk Seri Fateh Iskandar, the president of Real Estate and Housing Developers’ Association Malaysia (Rehda) casually told us over lunch last week that the population is forecasted to increase from an estimated 6 million to 10 million within five years.  

The much talked-about public concern hopes to be addressed in the annual budget for 2018 to be tabled by Prime Minister and Minister of Finance, Datuk Seri Najib Abdul Razak on Friday .

The need for cheaper housing is high up there in the list of concerns to both public and government.   

The biggest issue with housing is affordability and this is particularly so, for first-time buyers. Though salary and wages have been on the rise and government has abandoned low-cost producer economic model to suppress salary and wages, it has not kept up with rise in property prices.

In the past, new entries into the job market could begin to look into getting their first home after two to three years of working. Their first year priority would be to improve their mobility thus the first in the list was to own a motorbike or car. Few years later, they could then save up enough for the deposit to buy their first home.       

New graduates can earn  as high as RM3,000 a month but the way prices in the major cities are going, the first challenge of paying for the deposits seems insurmountable. Thus, government intervention on housing remains relevant and necessary.

According to Fateh Iskandar, the responsibility does not fall on only government but all parties in the property markets.

The federal government has made a lot of effort, if not the most effort, with their various programs done in this area. Through various agencies or GLCS, affordable homes are being built and the target of a million homes throughout the country, including non-Barisan Nasional states, are being seriously pursued.

Their only slack would be the protection of iron and steel monopolies which have caused sharp prices in the use of steel products used by the construction industry. If affordable housing is a priority concern of government, the import of cheaper steel should be allowed.

State  and local governments have to be serious in their affordable housing promises. Getting into their end of their second-term in Penang, the DAP-led state government has yet to deliver the first government affordable housing.

Original kampungs are being torn down to make way and lands snapped up by developers for high-end condominiums and commercial developments. Land has been sold away for development that the state is left with only about seven per cent of land.

In Selangor, affordable homes used to be the responsibility of state agencies like the Perbadanan Kemajuan Negeri Selangor (PKNS). Since the earlier Menteri Besar, PKNS has turned churning profit into a priority.

Property development is a source of revenue for both the state and local council through the fee for conversion, sub-divisions and various land matters. All the various costs have significantly increased in the last few years.

Selling land below market was one of the ways to make low cost housing available. However, such practices have been done away and even PKNS had to bid for land at market prices.     

One needs to look into the various procedures imposed on developers by the various departments in the state government and local councils.

The bureaucracies, and pen pushing attitude are the usual causesfor delays and this adds to the cost. Overheads need to  be paid and interest parking meter running on money lent by banks. One is not even discussing the corruption and it can get quite significant since the kickback rate could be for every signature made on land documents.

For a fact, majority developers have viewed state and local governments as the biggest culprit in failing the affordable housing effort. The reason being land falls under the jurisdiction of the state and federal government can  do nothing to address the problem.

Officers in the state and local governments had this long standing view that developers are making exorbitant profits. However, the days where owners of development companies could reject developments proposal with return less than 30 per cent are long over.

As told by Fateh Iskandar, major property development companies are now only getting returns of 13-16 per cent. Apparently, a major plantation company that went into property development and was supposed to have cheap land bank is only getting return of 15 per cent!

One problem that is seldom known by the public and not appreciated by the authorities is that developers are usually left with only 45 to 55 per cent of land that could be developed into saleable properties.

Developers have to deduct the land areas for roads, school, surau or places of worships, public park and so on.

Not known also is that the developers that have to construct and give the site free to Tenaga Nasional Berhad (TNB) for them to supply electricity and make money. So TNB’s growing fixed asset and land bank may not be a true reflection of their balance sheet.

Nevertheless, there are errant developers profiteering from the situation. To make available affordable housing for the people, developers could play their part by being reasonable in their profit expectations especially those with cheap land bank.

There are also issues with rising cost and availability of building materials. For material like sand, the problems return again to state and local authority.

These are among the major issues that have added up to the high cost of construction and making building affordable homes challenging. There are many more stakeholders in the issue of affordable homes.

Fateh Iskandar felt that all these stakeholders need to be serious and sit together to come to an understanding and plan of action for affordable housing.

It is not a clichéd statement because some parties actually just refuse to join in. All parties are rather selfish and consumed to protecting their turf.    

There is still a silver lining to the current situation of rising property prices and increasing scarcity of affordable homes.

According to Fateh Iskandar, the property market has not reached the speculative mania happening in certain Gulf countries where rich Arabs are buying high-end condominium by the floors.

If all the stakeholders do not sit together, such a situation could occur. Nation building succumbs to the heartless and crass capitalism as happened to a particular island n Malaysia!




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