This article first appeared in The Edge Malaysia Weekly on August 6, 2018 - August 12, 2018

EVEN in city states like Singapore and Hong Kong, housing affordability remains a challenge for policymakers. In Malaysia, further complicating the problem is that land-related matters come under the jurisdiction of the states and not the federal government. Land is a major revenue source for most state governments, except perhaps those that have oil-related revenue or royalties, namely Sarawak, Sabah and Terengganu, official data show.

In Selangor, land title premiums and quit rent contributed RM1.73 billion or nearly 70% of the state’s income for 2016. This is also true for 2013 to 2015, while in 2012, these two revenue sources contributed 63.5% to state revenue.

Selangor is not alone. At least 48% of state income in Penang, Pahang and Kedah came from land-related revenue in 2016 while for Johor, the figure was at least 51%. Land premiums, quit rent and land transfer fees made up about 60% of state income for Melaka in 2016.

For 2016, at least RM5 billion of the revenue of various states was land-related. The figure would be even higher if royalties from timber, forestry and other mineral extractions were included.

In short, states facing fiscal constraints, for instance, can get additional income to fill their coffers using the land they have by selling it, tendering rights for development or increasing quit rent or other land-related taxes. Additional income can be derived by processing the conversion of land usage rights.

So, if the federal government asks state governments to give up strategic land for development of affordable or low-cost housing, the latter’s income would be reduced than if the land were used for a higher-end development, a seasoned observer says.

In the same vein, removing land from the state’s jurisdiction naturally faces high resistance because of its significance in income generation, unless a clear and fair formula can be arrived at to compensate the state for any income loss.

Further complicating the housing equation is the difference in income levels in various states. What constitutes as an affordable level can vary across states as well as the urban and rural strata.

Using the 2016 median household income of RM5,228 a month, the affordable threshold would be RM188,208, using the three times median annual household income multiple gauge. For Selangor, Johor, Melaka and Penang, the average affordability range is higher, with the highest average being RM327,000 for Kuala Lumpur.

For Kelantan, the affordability threshold is only RM111,000 — below the average all-house price of RM157,000 and average terraced house price of RM162,000, according to 2016 data.

Home ownership in Kelantan, however, stood at 83.9% in 2016, which is among the highest in the country and much higher than the 62.2% in Kuala Lumpur, data from the Department of Statistics show. Home ownership in Selangor  (70.2%) and Sabah (71.6%) are also below the national average of 76.3%. Pahang is just a shade above average at 76.6%.

It is hoped that the new National Housing Policy to be unveiled in September can address the oversupply situation in certain higher-end segments, bridge the affordability gap for aspiring homeowners and align the interests of federal and state governments when it comes to land and housing. 
 

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