Housing Developments: Dilemma for Property Developers?

Policy initiatives relating to housing affordability has been through transferring physical (financial resources) to low-income households. However, the financial capacity of these income segment makes them ineligible nor able to afford a private sector supply of houses. 

Tan Sri Noh Omar's in his proposal can be considered as a thoughtful and very wise for the people, looking after their interests and wellbeing. The developers are prompted to provide loans to prospective house buyers with regulated interest rates ranging from 12 percent to 18 percent. Inequitably, much of the efforts are to assist the property developers’ position to build and maintaining profits against the people’s affordability. 

Is the property market experiencing a huge demand for ‘affordable housing’ or a housing glut? ‘Affordable housing’ by definition refers to housing units that are affordable by that section of society whose income is below the median household income. Noh Omar obviously is denying the reality of the market reports, thus comes gun blazing for the developers. 

Fact One; house prices should go down when there is a surplus in the market. Developers have to accept the situation and lower their profit margins, rather than government intervenes and letting them be loan sharks. 

Fact Two; Constructions costs has fallen and not consequently contribute to house price. It is the direct result of high land costs. Ultimately an increased land prices purchased by the developers, so does the market price increases. 

On Wednesday, the Cabinet has instructed the Urban Wellbeing, Housing and Local Government ministry to improve the housing policy and issue clear guidelines. On the same day, Real Estate and Housing Developers Association Malaysia (REHDA) revealed that home sales were down 52% in the second half of 2015 and 39% more in the first half of 2016. 

Logically, house prices in the second half of 2016 continues to decline or at a halt. The government, however appears to be supportive of the minister, suggesting REHDA to continue building high-priced housing, literally raking huge profits. This is a serious mismatch given the lack of supply of affordable houses. 

In a recent statistical report Khazanah Research Institute, a think tank founded in 2014 that focuses on Malaysia’s socio-economic issues, showed house prices in urban areas have increased threefold since 2000 and viewed as ‘severely unaffordable’ corroborated by many people’s conviction that house prices have escalated beyond affordability. Fact of the matter it is 4.5 to 5.5 times higher than the world median standards. 

Ironically, based on international benchmarks, a house should not cost more than three times the median household annual income. The median household income for 2014 was RM4,258. Out of 7 million total household found in the survey, 3.5 million are earning above RM4,700 while 3.5 million earns below RM4,700. Realistically the median home priced at RM153,288 yet these is not the case in Malaysia. 

A strong political will is needed to reform the supply-side and enhance its capacity to develop a sustainable and responsive housing sector. The provisions of social housing for the majority of population will exert financial pressures on government spending. As Malaysia becomes more urbanised, the demand for affordable housing will increase. If the trend is not addressed, the bottom 40% (B40) and middle 40% (M40) of income earners will more likely requires social housing in the near future.