Cover Story: Property market gridlock

This article first appeared in The Edge Malaysia Weekly, on August 6, 2018 - August 12, 2018.
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PICTURE a major intersection in one of the busiest parts of Kuala Lumpur where the traffic lights have stopped working. There is chaos as vehicles move haphazardly, all trying to move at the same time. Things escalate to a point where vehicles from all directions meet in the middle and angry motorists start glaring at each other, no party willing to give way to another.

The local property market is in a similar gridlock. There is an abundance of properties, yet the prices are unaffordable to the average Malaysian.

Developers blame the banks, citing their stringent lending policies, while the banks maintain that they are practising good banking and abiding by the regulations.

Meanwhile, the supply of residential properties, especially high-rises, has overtaken demand, leading to a mountain of unsold units year after year and exacerbating the glut.

The government has been trying to ease the situation by building affordable housing but has been unable to meet its targets. Meanwhile, the take-up of these units has gone from good to lukewarm.

The good news is that the new housing and local government minister under the new government has pledged to review the National Housing Policy (NHP) and to unveil a revised version by September.

But is it too early to celebrate?

The primary focus of the current NHP is affordable housing. Its stated goal is to provide adequate, comfortable, quality and affordable housing to enhance the people’s quality of life.

Sources say the revised version of the NHP could be similar to the previous iteration. “If it is still the same version that was sighted earlier this year under the previous government, then its thrust is quality housing, affordable housing, build to sell and the use of IBS (industrialised building system),” says a source.

“Industry players weren’t consulted on this version. They were only shown the final draft.”

Nevertheless, the minister has said that the revised NHP will be formulated comprehensively with regard to improvements, including in design, the provision of transit homes for the M40 youth and delivery system enhancements, such as the adoption of IBS in construction.

Affordable housing only became a hot topic in the last decade, after the property market started booming in 2009. This was in the wake of the 2007 US subprime mortgage crisis, which saw liquidity pouring into the global and Asian markets.

The good days lasted until a noticeable slowdown in 2016. Data from the National Property Information Centre (Napic) shows that overall transactions in the property market peaked in 2011 and 2012, totalling 430,403 and 427,520 respectively. But by 2016, total transactions had declined 25% to 320,425. (See Chart xx).

While little is known about the revised version of the NHP, the question is, should a national housing policy focus only on affordable housing?

Socioeconomic Research Centre (SERC) executive director Lee Heng Guie thinks the NHP should ensure that housing development is inclusive and that lower-middle-income households are also given the opportunity to own a home. It should concentrate on delivering market-driven properties without price controls and quotas, he suggests.

“The bumiputera quota and special discount ought to be reviewed based on need and income. Unsold bumiputera units that are not released to the open market will only add to the holding cost and overall cost of development.

“As for discounts to bumiputera buyers regardless of their income, these should be reviewed and be based on the guiding principle of equity. The discounts should only be given for low and medium-priced properties,” he says.

The Real Estate and Housing Developers’ Association (Rehda) is hoping that the revised NHP includes guidelines to address the release of unsold bumiputera units in each state. It also believes that the provision of low-cost housing and housing for the B40 group should be reverted to the government to give private developers more room in affordable and market-driven products.

“The property sector is plagued by various issues that are hindering its growth. The most notable issue is the lack of supply in locations where it is needed the most and an abundance of affordable housing in locations that require it the least. This mismatch between supply and demand stems from the lack of available data, which is why we support the pledge made by the government to establish a centralised agency to oversee housing issues in the country, particularly affordable housing,” says the association via email.

Carmelo Ferlito, Senior Fellow at the Institute of Democracy and Economic Affairs (IDEAS), says it is understandable why the government’s plans are focused on affordable housing — it is an evident problem in the market at present and affects the people to whom the government needs to pay the most attention.

“However, the best way to address the affordable housing problem is indeed to fully understand it in the light of the boom and bust cycle that is affecting the property market. Affordable housing is a problem but I believe that the way in which the government seems to be directed is not the appropriate one,” he says.

Carmelo believes the government should completely back out of direct initiatives in the field instead of merely reducing the number of national and state-level bodies involved in affordable housing.

He observes that in the most recent property cycle, developers invested so extensively in high-end projects that it is impossible for the market to absorb the supply. He suggests that they reinvest their capital in the affordable housing market where profit opportunities still exist. But the government should leave the market to private initiatives lest it ends up competing with the developers, he adds.

MKH Bhd managing director Tan Sri Eddy Chen agrees, saying that the government should play a different role — that of a facilitator or provider of incentives to boost the industry.

“An ideal situation would be to incentivise the developers to build affordable housing through lower development charges, fewer parking (bays), relaxation in planning requirements as well as lowering or abolishing unnecessary charges or requirements that would increase the cost of doing business. The savings can then be passed on to homebuyers in the form of more affordable housing,” he explains.

Ironically, says Chen, the lack of coordination between the public and private sectors in providing affordable housing is causing a glut in the segment. In the long run, this can seriously hurt profit expectations and crowd out private investors from the affordable housing segment, leading to a slowdown in the readjustment of housing production and the delivery system, he adds.

MKH hopes the scope and parameters for the public and private sectors will be spelt out to increase the feasibility of projects and optimise the efficient use of resources.

Mah Sing Group Bhd CEO Datuk Ho Hon Sang says the revised NHP should offer special considerations, such as less stringent financing or loan accessibility, especially for first-time homebuyers.

But opinions are mixed on this point.

Developers welcome a further easing of loan conditions but economists disagree for a number of reasons, including the country’s high household indebtedness.

“In the first place, lending regulations were tightened to curb speculation and the overheating of the property market. Will easing financing now be a wise thing to do?” asks an observer.

Carmelo does not think so because of the risk of a prolonged period of high prices and a further increase in the financial burden of households.

“Further credit support should be avoided to prevent further inflation of the bubble. The government should focus on implementing a good framework with strict credit rules,” he says.

Beyond the NHP

That said, there is only so much the NHP can do. It takes much more than a policy to resolve the issues afflicting the property market.

Mah Sing’s Ho says that apart from loosening the lending requirements for first-time homebuyers, the availability of up-to-date industry data is also necessary as it allows developers to plan and develop suitable products to suit market demand.

MKH’s Chen stresses that fact that income levels need to grow faster and the government can help by creating more high-value jobs and business opportunities, and by putting itself on a more productive, sophisticated and sustainable economic growth path.

To Rehda, what is crucial is cooperation between all the stakeholders — the government, property developers and related agencies — as this ensures the issues faced by the housing industry are properly addressed. Government support for related agencies is equally important, it adds. 

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