By Sherilyn Goh
There is no clear-cut solution to solve the problem of homes becoming unaffordable. But much of it will involve tweaking supply to demand with help from the government. That requires accurate information and regulation among others.
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Given the spike in house prices since 2009 and household income which has not risen in tandem, it is no wonder that the current housing conundrum is probably something unheard of in previous generations.
Realising that affordable home is what sells in the current market environment, many property developers are also gradually shifting their focus to the affordable housing space. But a gap still exists between what first-time homebuyers can afford and what developers deem as “affordable”.
A Bursa-listed property developer that KINIBIZ spoke to revealed that what it considers “affordable housing” – houses costing below RM500,000.
The result is a mismatch in expectations of what is deemed affordable by the lower- and middle-income groups, and that of policy makers, financial institutions and property developers.
Chang Kim Loong
“For too long, the government has listened to the advice from business groups with vested interests, who say that there is no problem with the housing sector in Malaysia and that prospective homebuyers are still able to buy their dream homes,” according to National House Buyers Association’s (HBA) secretary-general Chang Kim Loong.
“These business groups have openly touted that property prices of up to RM500,000 are deemed affordable for first-time homebuyers. For homebuyers who are upgrading their existing property, the price that is deemed affordable is up to RM1 million,” he said.
There exists an apparent gap between demand and supply with what the average household could comfortably afford and yet maintain a minimum standard of living, a criterion that most may have conveniently overlooked.
Minister of Urban Wellbeing, Housing and Local Government Abdul Rahman Dahlan has estimated in 2013 that the mismatch between supply and demand for affordable housing stands at 40%.
So is there a likely solution in sight to fixing the current housing mess?
Need for a centralised housing database
The 11th Malaysia Plan outlines a target of 653,000 units of affordable housing to be built during the period from 2016 to 2020, or an average of 130,000 houses built a year.
Given that an average of 60,000 houses were launched in the general housing market over the last five years, Khazanah Research Institute said that it is unclear whether this target has been based on an analysis of demand for affordable housing, and whether there is sufficient capacity for supply.
One of the biggest gaps in the current housing model is therefore the absence of an integrated database to effectively capture supply and demand. As it is, various housing registration lists reside with different agencies and ministries, while targeting mechanisms are also fragmented and overlapping.
Siva Shanker
Siva Shanker, chief executive officer of property valuers and agents PPC International, who is also the former president of the Malaysian Institute of Estate Agents agrees.
“The government has entrusted too many different agencies in the affordable housing segment. And I don’t know if they are talking to each other, or if you can register with Perumahan Rakyat 1Malaysia on one hand, and Syarikat Perumahan Negara Bhd on the other at the same time,” said Shanker, referring to the two main providers of affordable housing in the country.
While emphasising the importance of a streamlined database to ensure symmetric information, he also stressed that all the agencies should come together as one, to prevent recurrent purchases of affordable housing and abuses which will then defeat the purpose of such programmes.
DIBS, or no DIBS?
The developer interest-bearing scheme (DIBS), which lowers credit cost for property buyers, is a contentious issue. Bank Negara Malaysia has banned the interest-capitalising scheme in November 2013, as the scheme was considered responsible for the wanton flipping of properties in the housing market circa 2009, which has in part resulted in the housing bubble.
Amid the slowdown in the property market, recently there have been growing calls for DIBS to be reinstated, especially to assist first-time homebuyers in purchasing their own properties.
Shanker is among those who advocates for DIBS to be reinstated for first-time homebuyers especially in the affordable housing segment.
But Chang of the HBA disagrees. He said: “Everything’s paid by the developers but the instalments are factored into the purchase price. Developers are fond of the DIBS because it is a smart marketing tool which can be used to entice potential homebuyers into believing they have secured a good financing deals.”
He added that developers charge a premium of 8% for contingencies on top of the DIBS interest that they service.
“DIBS or any other permutation of similar ‘schemes’ cannot be allowed to continue for the betterment of the housing industry,” he emphasised.
Chang has also cautioned against any form of zero-entry in home purchasing, even for first-time homebuyers.
He was referring to the First Home Deposit Scheme, which involves a RM200 million allocation to the Ministry of Urban Wellbeing, Housing and Local Government under Budget 2016. The scheme is aimed at helping first-time homebuyers with their down-payment.
“Homebuyers must understand that it means taking out a 30-year loan and ‘slaving’ for the bank. They must understand their obligation to repay the monthly loan without fail and to regularly pay the maintenance and sinking fund as well as utility charges,” he explained.
Chang encouraged homebuyers to rent instead of own if they cannot raise the initial down-payment for an affordable housing unit.
Wages
No matter how much the government intervenes from the supply side via the direct provision of low- and middle-cost houses, or from the demand side through the relaxing of borrowing rules, it really seems as though the housing conundrum will not be resolved for as long as the fundamental problem of income is not addressed.
“While national and state governments should continue to apply downward pressure on house prices, the federal government needs to generate more upward pressure on wages in order to close the gap between market conditions and the desire of Malaysian families to own a home,” said Yin Shao Loong of Institut Rakyat.
The role of private developers
Besides the range of affordable housing programmes available, the government also has statutory requirement for the private sector to build 30% low-cost homes for every new development project, which some opined are not strongly enforced.
“There’s also an exemption clause where the private sector can pay their way out of not building the low-cost homes,” revealed a source who declined to be named.
“In terms of policy and guidelines, they are there to get the private sector involved in building affordable homes. But what we need to review is the enforcement as well as the implementation, and to understand why this is not working in some of the states.”
When asked if the government should wholly take over the role as the developer for affordable housing projects, the source said: “If we step back in history, the government has been the predominant provider of housing back in the 1950s via the Housing Ordinance Trust, but somehow that has also proven to not work.”
“The Housing Ordinance Trust’s operations were closed in 1976, and beginning from the 1980s the government started to implement the 30% low-cost requirement for the private sector.
“Historically, we do have the kind of experience which shows us that if the federal government takes on the developer’s role on its own, that may not be the most effective as well. But it’s really looking at the kind of partnerships between federal, state and local governments with private developers in developing housing,” added the source.
Many seem to agree that it is best to leave delivery to private developers, with the government providing both the regulatory framework and enabling the environment into making housing affordable.
According to Chang, the government can boost the delivery of affordable housing by giving incentives and rebates to private developers to build affordable housing. For example, the government can lower corporate tax rate, lower land conversion premiums and fast-tracking the release of unsold bumiputera units.
Meanwhile, Shanker thinks that the government should allocate land for the construction of affordable housing to encourage more private developers to take on affordable housing projects, the reason being that government affordable housing programmes alone will never be able to cater to the demand in the affordable housing segment.
“While there is an oversupply in the high-end market, there is a shortage of affordable homes,” he said. Shanker estimated a shortage of 50,000 units which fall under the category of affordable housing every year, which he attributed to skyrocketing house prices.
“If there are hundreds of thousands of affordable houses as it should be by now, the pressure of property prices would have slowed down. But such is not the case. We should just keep building (affordable homes) to ease off the pressure.
“Not only do we have to increase the number of affordable houses but we have to increase them really fast and exponentially as this problem has been brewing for a really long time,” he urged.
Resolving the conundrum
Khazanah Research Institute in its ‘Making Housing Affordable’ report wrote that the answer to making housing more affordable lies in improving the elasticity of housing supply.
In other words, the supply of housing needs to be made more responsive to the needs of all sections of population.
It recommends (i) the development of a designated procurement route for affordable housing intended to consolidate firms along the value chain, (ii) the development of measures to reduce pressures leading to rapid house-price escalation, and (iii) the development of measures to plan for a steady supply of housing at affordable prices.
Among its action plans include new housing units to be subjected to a limited-period moratorium that is sufficiently long enough for the next batch of housing stock to be supplied into the market at affordable prices, and to come up with a national data repository which captures supply and demand.
While the property sector acknowledges the problems affecting housing affordability overall, addressing the problem requires much more political will from federal, state, and even local governments.
With a growing urban population, the issue of housing unaffordability is only expected to escalate in time to come. It is clear that interventions are needed before the housing conundrum spirals into bigger problems in the near future.
Yesterday: PR1MA and the housing intervention
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