MALAYSIAKINI. 2ND AUGUST: It has become routine for every political party and politician that assume office to use the phrase “affordable housing” as their political fodder. Bank Negara Malaysia and several academicians have published papers on the subject matter but did not provide a sustainable solution.
Most publications failed to take into account major underlying issues. The old strategy of forcing developers to build such houses as part of “conditions for development approval” is archaic and is no longer practical in today’s economic environment.
Adding layers of regulatory requirements at the federal, state, and local authority has worsened the situation. Adding layers of bureaucracy invites corruption. It is killing the property development business slowly.
Affordability is relative. It cannot be solely defined based on the value of the properties. Purchasing power determines affordability which varies with geography and socio-economic environment. An RM300,000 product is a luxury product in rural/semi-urban settings but can be considered low-cost housing in capital cities. The system has become so complex.
Layers of administrative requirements imposed on developers. They are forced to provide low-cost houses, affordable houses, and bumiputera discounts as part of the condition imposed on development approval. This does not affect their overall profitability as they do cost transfer between different categories of products which impacts one segment of buyers but benefits others.
In the current economic environment, the segment of buyers that can pay more is shrinking. This resulted in higher unsold houses in the market. While there is good demand for medium and low-cost bumi housing products but it is lesser for high-end products.
Developers are exposed to the risk of poor sales and unsold bumi units. To unlock unsold bumi units, developers pay the authorities specific contributions. This policy needs to be reviewed. Developers should be allowed to build houses based on market demand and let supply and demand dictate the price.
In addition, escalating land, material, and labour prices with higher land conversion rates and mandatory contributions (local council, Indah Water Konsortium, Irrigation and Drainage Department and Tenaga Nasional) makes properties more expensive. Project approval is highly bureaucratic and time-consuming.
Higher submission and approval process invites corrupt practices. This legal and illegal direct cost is estimated at 25 percent to 35 percent of the total development cost (varies with location). This led to higher property prices as developers must maintain certain profit margins to meet shareholders’ expectations.
It is an inefficient system because there is already a tax mechanism based on earnings for all Malaysians. The high-income group is already paying a huge amount of taxes. Subsidies should come from the government’s consolidated funds or specially created funds and not from other layers of taxation.
Malaysia as a country is based on a federal system. Every state has different sets of laws that regulate land and property development. Every state maintains its own set of processes and procedure on land governance. This must be respected.
There have been calls to have centralised common federal law for all states. They are not only impractical but are against the Federal Constitution. We cannot simply copy the Korean or Singapore model as the underly legal framework are different.
However, states are free to maintain a decentralised system based on common guidelines. Having such arrangements makes it easier for investors in the real-estate development business.
We must appreciate and respect some acceptable principles. Bumi allocation must not be equated to bumi discounts. Bumi allocations are part of the National Population Integration strategy. Bumi discounts are privileges given because of the poor socio-economic of bumiputera.
However, many Malays are no longer in this category. In Singapore, population integration is enforced without the need for quotas or discounts but rather the government controls the ownership-based population demographics and transaction approval.
Should the rich Malays be given this benefit? Should the lower-income Malays be given such discounts if they are buying more than one house? These questions must be addressed.
The buyers’ database of those who have enjoyed bumi discounts needs to be managed centrally. At the current age, it is not rocket science. Bumi discounts should be limited to buyers who buy for their occupation. They should not enjoy such discounts as part of wealth accumulation. If the government can regulate this, more homes would be available for bumiputera.
Moving forward
Any proposed solution must be practical, good for the economy, and helps the people. Government should consider having a straightforward taxation system in the property sector and removing as many layers of various charges, product cross-subsidies, and maintaining the bumi quota in the development.
The state and local councils and utility providers would get their share from the federal government based on an agreed formula.
As of May 30, 2023, about 600,000 units of houses at various stages of construction are being built in Malaysia. Based on the average value of the property at RM300,000, the estimated gross development value (GDV) is RM184.25 billion. If the government imposes a two percent surcharge on the developer based on GDV, a central fund of RM3.68 billion is created.
Unlike the present system, this surcharge is spread to all buyers and not to a select group. This two percent is embedded in the property selling price. A higher charge should be imposed on buyers who buy houses for investment purposes and not for their stay.
This fund should be managed by a body – Public Housing Corporation (PHC). It can be used to finance bumi discounts and various public housing. It is now focused on people that need help. Local authorities and utility companies will get their share from the PHC.
With this approach, the government gets its earnings from corporate tax and the surcharge. The additional revenue can be used to help the public towards owning a house, and it will let private developers focus on the business of production and selling houses at appropriate costs and a reasonable profit margin.
This arrangement benefits the purchasers and the developers. PHC can also acquire properties and offer them for rental or rent to own.
In addition to the above, this approach will create an economic spin-off that helps the country. A streamlined and clear process will help investors will benefit low-income buyers (irrespective of ethnicity) who need shelters badly but can’t afford them. It is time for the government to end this conundrum.
The government needs to help the property development industry intelligently in a way that will benefit the country and the people. Business processes need to be made simpler.
The PHC shouldn’t be a developer. It should be a company that handles and facilitate financial allocations, and housing subsidies to the needy that focus on property categorised as public housing.