By Khairie Hisyam
Developers turn to higher end developments not only for better profits, but because they cannot survive in the affordable housing segment, say several property developers.
Real Estate Housing Developers’ Association (Rehda) national treasurer NK Tong said yesterday that developers cannot afford to go into the affordable housing segment unless, for example, they are given land for development as a way to reduce the costs.
Tong points out that during a dialogue session on urban development held by the Ministry of Finance several weeks ago, even a representative from the Urban Development Authority (UDA) noted that it costs UDA RM150,000 to RM180,000 per house in construction costs alone for affordable houses — before the land costs are factored in.
“Even for them, a government agency, it already costs so much — the representative was pointing out that costs are high, you cannot sell cheap anymore,” stressed Tong. “You have to find ways to bring costs down.”
“One of (the ways) is land costs, and the other is to have the government build it,” suggested Tong. “Because the government doesn’t have to do it for profit, it does it for social reasons.”
Earlier, Tong presented the findings of its Property Industry Survey 1H 2013 in the media briefing, which found that Kuala Lumpur and Selangor is set to see the price range of between RM1 million and RM1.5 million as the most common range for properties launched in 2H13 based on the feedback of respondents.
Michael Yam
Also speaking after the session yesterday, Rehda president Michael Yam echoed the housing minister’s remarks last week that there is a supply–demand mismatch in the affordable housing segment.
“As an emerging country with a young population and urban migration, there is a lot of demand but not enough supply,” said Yam, adding that this is the main reason for the issue of rising house prices seen today.
‘Tackling affordable housing issue takes time’
Speaking to KiniBiz after a Rehda media briefing yesterday, Tong was clarifying his earlier remark that developers can only produce as much as the market demands and depending on what developers can afford to build.
Acknowledging the affordability issues plaguing housebuyers today, Tong said the time to tackle affordable housing was 10 to 20 years ago and the problem would not be solved overnight.
“Or maybe the other way to look at it: it will take us another ten years or more of concerted effort to really tackle the root of the issue,” said Tong.
“In the 1960s when there was a housing crisis in Singapore, at that time only 9% live in public housing,” said Tong, adding that after the launch of the Housing Development Board (HDB) program, 82% of Singaporeans today live in public housing.
NK Tong
“Now I’m not saying that we need 82% of Malaysians staying in public housing but I’m saying we need the percentage that needs affordable housing to stay in public housing,” explained Tong. “Hopefully this time with PR1MA (1Malaysia People’s Housing Programme) the government will get it right, because there’s been many other agencies that has promised but did not deliver.”
If Malaysia aspires towards below three persons per household as seen in developed countries with ample land similar to Malaysia, Tong says the nation would need eight million houses or more.
“If you look at the statistics, in the last five years we have produced 100,000 homes. So for us to get to, say, 8.3 million houses it would take us 35 years at the current rate,” said Tong, continuing that this is “provided two things does not happen — we do not have any further urbanisation and we stop growing (in terms of population).”
‘Incentives? Just improve delivery system’
In the housing ministry’s Workshop on Initiatives to Reduce House Prices held last month, more than two thirds of industry stakeholders participating agreed that developers should be given initiatives so as to encourage them to build affordable houses.
When KiniBiz posed the question, Tong opines that “we just need to make housing delivery system more effective”.
“It’s (about) getting faster approvals, removing all these extra utilities costs, all the extra requirements,” said Tong.
Ricque Liew
According to Ricque Liew of Rehda, a 1Q13 survey by Rehda found that compliance costs ranged between 15% and 25% across a wide spectrum of property developments. These costs include contributions as well as building mid-construction and handover infrastructure for utilities companies.
“For example we have to build sub-stations for Tenaga Nasional (TNB),” said Liew, who is also managing director of Paramount Property Development.
Earlier during the media briefing, Rehda Malacca branch chairman Anthony Cho said that while some market-driven costs like land and supply cannot be changed, there are certain things that can be made more effective to enable lower house prices.
“For example, the mechanism of contributions — some of the contributions are just ridiculous,” said Cho.
Cho points out that in Malacca, developers pay flood contribution fees in addition to existing drainage contribution due to flooding in 2006, but there has been no more flooding since then yet developers continue paying.
“It can go up to RM5,000 per unit,” said Cho. “For affordable houses priced at RM200,000 for example, if the contributions amounts to 20% to 30%, then you can bring the cost down by as much as RM50,000.”
Othman Omar
In the 16th National Housing and Property Summit last month, Selangor State Development Corporation (PKNS) general manager Othman Omar said that outdated and inconsistent requirements imposed by local councils as well as approval delays can increase development costs by up to 30%.
“Late approvals can increase the development cost from RM5 per square foot to RM30 per square foot,” said Othman. “Our production cost increases. So who pays at the end? The cost will be passed down to the housebuyer.”
“In Shah Alam, we were told to build a pump house for one of our projects, (but) after we spent money to build it, they told us it was not necessary. By then it was too late as we had to pass the cost to the final price of the house,” said Othman, adding that compliance cost such as providing utilities will push the gross development value up by 30%.
In the Rehda Property Industry Survey 1H 2013 some 58% of the 150 respondents believe that capital contributions required from developers towards utilities have a negative impact on the housing industry.
“Quite a few of these utilities companies are now privatised and they have continued to pass on the costs to the developers,” said Rehda national treasurer Tong. “Ultimately what the utilities companies are doing are passing on the costs to the homeowners while continuing to benefit from the profit as a private company.”
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