Home, elusive home

[Red 5]

Sunday October 10, 2010

Home, elusive home

BY JOSEPH LOH
[email protected]

Of late, there has been a hue and cry about problems of buying affordable housing. Certain factors are being identified as the cause of these problems but are things as clearcut as they seem?

FOR all intents and purposes, K. Anand looks like a young professional who has the world at his feet. He has a steady job as a bank executive, owns a locally-made car, and will be getting married next year. Now aged 30, he has all the ingredients necessary for a blissful married life, except for one – a house to call his own. “Since I got engaged a year ago, I have been looking for a house, but I haven’t found one I can afford yet.”

Anand has a budget of about RM300,000 – a sum which appears substantial – but as he found out, it is not enough to buy the house that fits his criteria. He wants to own a house, not an apartment, and preferably in the vicinity of Petaling Jaya, Selangor. “There is nothing decent below RM400,000 and I do not have that kind of money. I may have to continue renting or look for locations that are much further away,” he says.

Anand’s situation is one which many young professionals are finding themselves in these days. Prices of residential properties have gone up, notably so in the past 12 months (see graphic). This has essentially priced out the young professionals from buying a piece of landed property in popular areas like Petaling Jaya. This leaves him with two choices – either buy a smaller apartment unit or buy a house away from the city.

It is understandable for property prices to rise. However, what the National House Buyers Association of Malaysia (HBA) is concerned about is the drastic escalation of prices over the past few years, says its honorary vice-president Brig-Gen (ret) Datuk Goh Seng Toh. “Prices of houses, like everything else, will go up at reasonable inflationary trends, but it should not be at the rate we are experiencing now.”

HBA honorary secretary-general Chang Kim Loong gives some examples of property around the Klang Valley. He describes that in Kajang, a double-storey house was launched in 2004 for RM238,900, but in 2010, the same type of properly was launched at RM327,600, an increase of RM88,700 or 37%.

Chang: ‘If they can implement price controls for essential food items, why not for housing?

In Kota Damansara, a house averaged RM330,000 five years ago but today, the asking price is RM600,000, up RM270,000 or 80%. A double-storey house in Puchong cost RM400,000 five years ago, but has now increased to RM600,000, up 50%. Chan Ai Cheng, general manager with S.K. Brothers Realty (M) SB, has witnessed the increase in prices but attributes other factors to the rise.

“In established areas, prices of landed homes have doubled in less than 10 years, but this is a sweeping statement. Rising cost of materials, labour, land costs, scarcity of land in established locations, better designs and finishes, are the reasons for the increase,” she says. There are properties in prime areas that are still affordable, but the question is what one gets for the money.

“You can buy property in Puchong, Kepong or Kota Damansara from RM200,000 to RM400,000, but what you get is a 750 sq ft apartment which is just a pigeon hole,” says Goh. Chang says the problem is not limited to the Klang Valley alone. “It is a problem in bigger cities and towns, and on Penang island, for example, it is worse. Even those earning RM4,000 monthly cannot afford a place on the island. They have to go over to the mainland in the Prai area.”

Real Estate and Housing Developers’ Association Malaysia (Rehda) president Datuk Michael Yam says it could be possible for the young professional to afford a house, but not on a single income. “If he earns RM3,000 a month and you look at the absolute price of landed property, then it is beyond his reach. However, if it is a double-income family, they could still afford something, but it will be difficult,” he says.

Yam: ‘Costs have gone up by more than 50%’
The burning question is: What is driving up prices?

Chang says it cannot be denied that cost of raw materials has gone up, but that is not the main reason. “The biggest reason is unsustainable demand, driven by easy credit availability and speculation.” Goh is more scathing with his remarks. “Greed and the market are driving up the prices. For every piece of land, developers want to maximise profits, and there is no social responsibility.”

To an extent, Goh understands that developers are businesses driven by the bottom line. “In the Klang Valley, there are no developers who are building affordable single-storey houses. Why build one when you can build a double-storey unit and sell it for twice the price?” Chang goes to the extent of stating that there is an artificial inflation of prices.

“There is an unholy alliance between developers, certain financial institutions trying to maximise profits and reach targets, and even valuers who collaborate,” he claims. He gives an example of a project which when launched three years ago was RM400,000 per unit, but units in a current phase there now cost RM1.8mil. “How is this possible? There has to be some reason for the trumped-up valuation and the banks extending the loan period to 35 years.

These loans will spill over to the next generation,” Chang argues. Goh also discounts the fact that increasing construction costs translate directly to the current spiralling prices. “We call it the ‘teh tarik syndrome’, when the price of sugar goes up by 10 sen, the price of a cup (of teh tarik) goes up by 10 sen as well.” He explains that construction costs account for about 30% of the ultimate cost, so the drastic increase cannot be justified.

"Property is speculative income, and they are taking money from our future generation to spend today" BRIG-GEN (RET) DATUK GOH SENG TOH

On his part, Yam counters that the rise in construction costs is an important factor in the price of property. “Costs have gone up by more than 50% for everything from raw materials to labour rates,” he says, adding that the cost of land has to be factored in as well, but not the cost of the land the property is built on. What should be looked at is the cost of the next plot of land that the developer buys to build on, and because of the scarcity of good, serviceable land, this is entirely at the whim of the seller (of the land), he explains.

“For example, he may have bought the land for RM35 per sq ft but today it will cost RM200. If they (developers) sell the property cheap, they will not have money to buy the next piece of land. “The record is now RM7,000 per sq ft in the central KL area. Yes, it may have been an aberration, but the bar has been set.” Developers have also been encumbered with extra, hidden costs, according to the HBA.

“Developers are not charitable organisations so extra costs (including cost of building infrastructure for basic utilities) are passed on to the buyer,” says Chang. He says that developers shoulder the responsibility of building roads and providing infrastructure for utilities, even though some of these providers have been privatised. “In the past, these were under the central government.

These are now corporatised, listed companies but they still enjoy the same deal. Why are housebuyers still paying for their infrastructure?” Yam says developers are not unaware of the problem. They are aware that there is a big demand for affordable units and the take-up rate will be good, yet are not motivated to build them, he says. “There is an imperfection in the planning law. There should be some enabling legislation to encourage developers to build smaller, affordable units.”

Yam explains that typically, planning laws allow only 60 units to be built per acre on residential title land, which is based on a population density principle. “As a developer, you want to maximise the net saleable area, so you build as big as you can. It makes no difference if you build 60 units of 1,000 sq ft units, or 60 units of 3,000 sq ft units.” “The only ones who are building smaller sized units are the commercial-title apartments, which is based on a plot ratio.

So you can chop it (built-up floor space) up into any unit size. “The problem is that people who buy them end up paying higher property taxes and commercial rates for utilities.” Yam says the solution could almost be as simple as raising the cap on the number or units per acre. “The planning laws needs to be reviewed so the developers are encouraged to build smaller units for the market.

For example, they should not restrict the number of units per acre, or if they are building small units, more should be allowed.” The HBA also believes that the Government can do much to curb the unrestrained spiralling prices of property. “If they can implement price controls for essential food items, why not for housing? Both are items of necessity, so why can’t they do that based on the same philosophy?” Chang queries.

A special government task force should be set up, he suggests. “Let us be serious about it and get parties such as NGOs, financiers, industry players and academics to sit down and talk about it.” He says Bank Negara, for example, can play a significant role. “They are the controlling authority for all financial institutions. They cannot control property prices but can control the bank and the environment where the housing market operates.

“They can do this by controlling interest rates, the period of repayment and loan-to-value ratio, among other measures.” Goh adds that the current one-size-fits-all housing policies cannot continue. “We cannot have a policy that is the same for a first-time houseowner or speculator. Singapore, for example, has implemented some sensible measures.

“They have things like a minimum occupancy period, and you have to stay in a place for five years before you can sell it.” People should not be making too much money from property, Goh reasons. “It is not like the palm oil industry, for example, which is material substantive income. “Property is speculative income, and they are taking money from our future generation to spend today.”