Generally speaking, affordability is calculated as a percentage of the household income. If we look at today’s household expenditures, we should not allocate more than 30% to 35% of the total income to the house loan repayment (house expenditures to income ratio).
If we look at affordable housing from this perspective, we first need to define how much Malaysian households are getting every month. In other words, based on the country’s average income per capita. The latest statistics carried out in the middle of 2013 identifies RM3,200 as the average per capita income in Malaysia.
It would not be far wrong to state that we cannot give the same affordability rating to Kuala Lumpur and Seremban, just as an example. We also need to have a Federal Government definition of affordable housing, at least on a state-to-state basis.
I’ve tried to do that using available Government statistics dating back to December 2012 in relation to population and per capita income and the result is illustrated in the table above.
Once we view affordability in proportion to “per state income”, surprises are in store. While an average middle- class person residing in Kuala Lumpur can still afford a house priced at RM500,000, a senior administrative employee in Selangor can hardly buy a house above RM250,000. Meanwhile, in Kedah or Kelantan, the affordability level is estimated at approximately RM70,000.
A few considerations are due as up until now, we have only elaborated on the concept of “per capita” income. In comparison to statistics obtained in 2012, an average Malaysian household has four members, out of which at least two are working. If we look at the last column of the table above, values are surely more realistic and in line with actual real life.
However, once we calculate the value per sq ft generated by the values above divided by a “livable” size of a house (four members per household need at least three bedrooms and two bathrooms) which, as per local standard, is 900sq ft, we will discover that the greatest part of available homes are actually unaffordable.
There are several ways of analysing this phenomenon. From a consumer/end-user’s point-of-view, the blame is likely attributed to what is perceived as the “greediness” of the developers in wanting to rake in high profits, while the House Buyers Association or HBA may pinpoint developers and investor clubs.
Meanwhile, developers are urging the Government to do more and also to possibly emulate the strategies of Singapore’s Building and Construction Authority (BCA) which has tackled the issue of public housing in an exemplary way.
Last, but not least, the Government reiterates that a number of “house buying easing tools” have been studied and put into practice, but there is a lack of response from the public and the developers.
Thus, I would like to suggest that “what is right is always half-way”. I have been working for developers for a large part of my career, and I’ve often spoken on this topic. This is why I would propose using logic and common sense to look for a possible solution to the problem.
If we pretend to find a solution that we think will make all parties happy, then we will be embarking into a “dreamland kind of situation” as it is wishful thinking to fulfill everybody’s wishes. Therefore, I think that the best approach is to get all parties to talk to each other in a practical, non-political manner and work together to find and effect the most practical solutions.
The following represents some possible frameworks for establishing an “affordable housing” platform covering suggestions to the Government, developers, HBA and other non-governmental organisations (NGOs) as well as buyers and end users.
1) Possibly refrain from imposing the weight and responsibility of low-cost housing subsidisation on developers by means of imposing the “compulsory low-cost housing” condition for projects located on more than five acres of land.
This isn’t entirely feasible and the “subsidy” at the end, will only result in the rise of construction costs for medium-high and highend houses – raising their prices to unaffordable levels.
2) As an alternative to compulsory low-cost construction, the Government could propose either free land in more strategic locations, possibly served by efficient public transportation.
Then, developers will only have to support the cost of construction while having more available space for higher profitability developments within the original project.
Alternatively, the Government could impose a fixed or proportional rise to the price per sq ft of “low cost/public housing contribution” on all development projects.
This will then sort itself out in terms of the construction of low-cost housing projects through one of the available Government-owned construction companies.
Personally, I prefer the second option as it presents an interesting and viable solution to another big problem that we tend to forget, which is the low-cost/high-rise building maintenance and loan serving behaviours of the lower income group members.
3) To stop selling low-cost flat and apartment units, and instead simply rent them out. With the collected rent, perform a comprehensive building maintenance exercise.
End users will enjoy a more livable and safer environment while paying more affordable prices compared to the loan repayment. Besides, the rental will allow a more flexible monthly family budget.
In the event that the Government still prefers to have developers take the responsibility for low-cost housing construction, then a good incentive might be the given possibility to construct a small number of simple two-storey shophouses within the low-cost area which will procure a decent profit to balance the subsidisation of the housing component.
This concept is part of a detailed and in-depth study done by AA Design Group, a local architecture firm headed by its co-founder Ar. Saiful Anuar Abdul Aziz.
He said, and I fully agree with him, that the best “simple and original food” can only be found adjacent to the low-cost areas, where authentic grandma-style cooking is still available.
I think developers could start looking into different construction technologies to become more innovative in their project offerings.
No one can deny that construction costs are on the rise and this is likely to worsen in the next 12 to 18 months due to the forthcoming enforcement of the GST (Goods and Services Tax).
Even though this might sound out-of-place, I think there should be more investment in R&D (Research and Development) in order to come up with different methods, technologies and products to be used as an alternative to older methods that are becoming almost unaffordable.
The introduction of GreenRE by Rehda (Real Estate and Housing Developers’ Association Malaysia) is surely a move in the right direction.
Both developers and the Government should also meet to constructively discuss and find a practical framework for the gradual implementation of the BTS (Build-Then-Sell) scheme instead of moving in opposite directions.
HBA and other NGOs
Let me first of all, praise the great work done by HBA in the last few years, in tackling errant developers to ensure they have completed the construction work started on projects and by defending the rights of house buyers.
On Oct 25, 2013, HBA achieved most of its speculation curbing targets through the tabling of Budget 2014.
I personally look at this as a very good move to bring about long-term sustainability to the Malaysian property market.
Additionally, I would like to hear more about practical and feasible proposals in solving the housing affordability problem.
Personally, I feel that merely pointing fingers at developers, investor clubs, bulk or en bloc purchases, group purchases and so on will not lead to a feasible solution.
Instead, holding a roundtable discussion on this topic is a more practical way to discover appropriate solutions to this challenge.
I feel that property investors, at least the medium- to long-term ones, are offering a viable and “ready-to-use” solution for affordable housing.
This is in relation to purchasers who, because of their income being in the range of RM3,000 to RM5,000 per month, cannot buy a house.
By offering them fair rental options within the same range of a possible budget, they may be able to afford the loan repayment of the same property.
Buyers and end users
In this case, I will only express a few short comments mostly on the highly emotional behaviours of property purchasers in Malaysia.
I’ve been working in this industry in a number of different countries and I’ve seen quite a wide range of purchasers’ behaviours, but none of them have been as emotional as witnessed here in Malaysia.
I’ve always recommended the use of rational and logical arguments when purchasing a property and caution purchasers not to decide on the spot and always conduct a proper due diligence research on the project and developer to make sure that the decision is the right one.
In other words, do not simply buy because someone is recommending that particular project to you.
Your purchase should be preceded by proper research before deciding to purchase.
On the other hand, buyers of affordable houses should not expect to find reasonable prices for livable houses within highly priced hotspots, as unfortunately, the two considerations do not match.
New infrastructure currently under construction include the LRTLRTLRT line 1 and 2 extensions as well as the MRTRT Line 1 and 2, not forgetting a future possible LRTLRTLRT Line 3 from Klang/Shah Alam to Petaling Jaya plus a number of new highways and expressways.
Therefore, it will be possible in a few years to live in Kajang or Sungai Buloh where houses prices are more reasonable and to work in KL – commuting every day by rail instead of having to drive.
Although there are many more issues that should be addressed and spoken about to forever resolve the housing affordability challenge, I believe that in Malaysia, we are living during one of the most exciting times in terms of the Malaysian economy and property market history.
New property and economic hot spots are surging in the north with Kota Baru and the Northern Educational Hub in the East as well as Kuantan as emerging as the East Port of Malaysia.
Then, there’s the central region of Ipoh with its lush greenery setting – perfect for planning long lasting retirement homes and health tourism market, just to mention a few.
The new property market’s potential is foreseeable with a forthcoming boom for retirement homes and double key-system houses.
Iskandar Malaysia is also flourishing within the planning and time frame defined by Khazanah Nasional Bhd and Irda in 2005 as the most strategically sustainable location in South-East Asia.
This year will surely be a challenging one but we should look at it through the lens of “when the going gets tough, the tough get going”.
Constructing and selling, I foresee, will not be a challenge in 2014. Instead, I believe that the real deal has just begun.
This year, I believe, is going to witness the challenging and changing panorama of home financing or mortgage loans.
Hence, both purchasers and developers will have to be fast in adapting to the new situation in a positive and creative way and this will further stimulate the whole industry.
Looking at the challenging future, purchasers of affordable properties should take into consideration the idea that the property markets of Serdang, Seri Kembangan, Kajang and Bangi might provide alternatives to finding positive surprises in the type, sizes and prices of units waiting to be discovered in these locations.
The same applies to Klang Valley purchasers who are travelling more towards the south – between Bangi and Seremban – as they may probably find good offers for much bigger houses.
A lot of big developers are preparing launches within the southern and western corridor of the Greater Klang Valley and opportunities are there for everybody to profit from it.
It’s enough to know what you are looking for and then to look for the property.
Source : www.starproperty.my