This article first appeared in The Edge Malaysia Weekly, on March 14 - 18, 2016.

Affordable houses in strategic parts of the Klang Valley are almost impossible to find, largely due to high land cost. To address this, the government has approved 10 affordable housing projects located along the light rail transit (LRT) and KL monorail lines to be undertaken by Perbadanan PR1MA Malaysia and Perumahan Penjawat Awam 1Malaysia (PPA1M).

These projects are among the 19 that have been earmarked as transit-oriented developments (TOD), according to a Ministry of Finance circular sighted by The Edge. The other nine projects, which will be developed by state-owned Prasarana Malaysia Bhd’s Prasarana Integrated Development Sdn Bhd (PRIDE), are not required to be priced affordably.

However, the circular did not indicate the commencement or completion dates of the projects.

According to the circular, PR1MA’s eight projects will see 4,216 affordable homes being built at an estimated cost of RM1.42 billion. The company may partner other developers for some of the projects, which cover 32.66 acres. The eight locations are at the Pandan Jaya, Pandan Indah, Cempaka, Kinrara, Bandar Puteri, Sentul and Jelatek LRT stations as well as the Titiwangsa monorail station. The last location is near where the Pekeliling Flats once stood and which will be redeveloped by MKH Bhd.

The development cost of RM1.42 billion for 4,216 homes works out to RM336,812 per unit. As the existing PR1MA houses are priced below RM300,000, there may be a need for a subsidy from the government.

Prasarana’s TOD projects — at the Kelana Jaya, Lembah Subang, Glenmarie, IOI Mall, Dang Wangi, Bangsar and Awan Besar LRT stations as well as the Tun Sambanthan monorail station — cover 66.32 acres in total. Prasarana’s land in Taman Tun Dr Ismail will also be developed, according to the circular. It did not state the number of houses or the development cost.

PRIDE was set up in 2014 under Prasarana’s reorganisation exercise. It is tasked to maximise the economic potential of the government-assigned landbank along the country’s LRT lines. The exemption from developing affordable housing is not a surprise given that PRIDE was set up to maximise the value of the land and provide Prasarana with recurring income.

Profit from PRIDE’s TODs will be channelled into maintaining and upgrading the public transport business and partially subsidise fares. This model has been successfully used by MTR Corp of Hong Kong and SMRT Ltd of Singapore.

With plans for more rail-based public transport networks, PRIDE is expected to be assigned more land by the government. It is set to start construction of the Bandar Utama ­— Klang LRT line (LRT3) this year.

PPA1M will develop TODs at the Tesco Puchong and Putra Heights LRT stations, on two-acre and 8.22-acre parcels respectively, for government servants. No further information has been provided.

Where’s the money?

In a reply to The Edge, PR1MA says balloting for 21 projects throughout the country will be carried out “soon”. Only three of these projects are in the Klang Valley.

Last year, 11,488 PR1MA houses in 14 projects across the country were put on the ballot. The houses have an indicative starting price of RM145,000 to RM300,000, depending on the location and house type.

By the end of this year, PR1MA says, it will deliver 10,000 units in Johor, Kedah, Perak, Perlis, Kuala Lumpur  and Putrajaya. The corporation says it is on track to build 500,000 homes nationwide.

“To date, PR1MA’s members of corporation have approved 198 projects comprising 233,380 units nationwide. 75,859 units are now in different stages of construction,” it says in the statement.

PR1MA will not be building the 233,380 homes all at once as that would disrupt the market and put the company in competition with the private sector in the supply of properties as well as demand for building materials.

Other than development planning, there is still the pertinent question of funding. According to the circular, the development cost of the 10 affordable housing projects will be fully borne by PR1MA and PPA1M.

“Our request for funding is driven by our need to fulfil our financial obligations,” says PR1MA in the statement.

It says the government has so far disbursed RM2.7 billion for the developments. The money has been used to make progress payments as well as to expand its landbank, the corporation says.

It is worth noting that PR1MA has been allocated a total of RM4.4 billion under the budgets from 2013 to 2016.

It is not certain whether the government will fork out the remaining RM1.7 billion to PR1MA, which has also raised debt on its own with the government’s support. Last August, Malayan Banking Bhd provided the corporation with a RM3 billion bridging loan facility.

Any debt raised by PR1MA could add to the amount guaranteed by the federal government, which stood at RM177.73 billion as at end-2015. Nevertheless, the development of homes in TODs in the affordable price range of RM150,000 to RM300,000 per unit would be welcomed by first-time homebuyers in the low and middle-income groups.

The debt obligations will not add systemic risk to the government’s coffers if the developments are well planned and well executed. 

As for the planned TODs, prospective homebuyers and related players would be able to plan better if the delivery schedule of the homes can be ascertained.

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