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City & Country: Affordable housing an on-going issue

DESPITE years of discussion between the government and private developers, the issue of affordable housing remains unresolved, while demand for homes keeps growing.

Earlier this month, it was reported that the Johor government threatened to confiscate the lands of Johor-based property developers who fail to build affordable homes costing RM150,000 per unit.

In addition, developers are required to allocate 30% of their housing projects above five acres for low-cost housing.

Urban Wellbeing, Housing and Local Government Minister Datuk Abdul Rahman Dahlan has said developers are expected to build half of the one million affordable homes pledged by Barisan Nasional in its election manifesto in May.

Who should supply affordable housing?
Many are still uncertain whether the government or private developers should supply affordable housing to the market.

According to a property analyst, affordable housing is a social welfare issue and it’s rightfully the government’s job to supply it.

“It has got to do with social welfare,” she says. “Providing affordable homes for the people should be done by the government.”

Datuk Seri Michael Yam, president of the Real Estate and Housing Developers’ Association, offers that it is the general role of the government to provide affordable housing through general taxation.

He quickly adds that the government has already come up with a solution through schemes such as the 1Malaysia People’s Housing Programme (PR1MA).

PR1MA, under PR1MA Corporation Malaysia, was established in 2011 to plan, develop, construct and maintain affordable housing for middle-income households in key urban centres.

“Development is not your average investment, it does take time,” Yam says. “There are land laws and state laws that need to be taken into account.”

Even with PR1MA achieving 250,000 applicants for the first phase of its development, many still believe that there is more to be done.

According to the analyst, the government has been all talk.

“All they’re doing right now is PR1MA housing, and even then, there are a lot of limitations. We don’t know what the progress is now. Execution and implementation have always been the issue with the government. They need to improve by first being transparent and informing the public about the plan and status.”

She adds that even if the government comes up with a new scheme or solution, nobody will know what is going on or how effective is it.

Datuk F D Iskandar Mansor, group managing director and CEO of Glomac Bhd, says prior to this, the responsibility of supplying affordable housing to the market has been put on the shoulders of private developers.

Iskandar mentions that there are many challenges in the property development industry right now without having to worry about building affordable housing.

The issue of affordable housing remains unresolved

“The cost of doing business has gone up,” he says. “Land conversion costs have gone up along with capital contribution and compliance costs, making it more and more difficult to develop products that give us a good profit margin.”

According to James Wong, managing director of VPC Alliance (Malaysia) Sdn Bhd, land cost makes up more than 20% of the total development cost.

“In urban areas like Kuala Lumpur, Johor Baru and Penang where affordable housing is in high demand, land is getting scarce and with it, prices for land are high,” he says. “When developers buy such land, they have to build high-end products because they cannot build affordable housing and still maintain a profit margin.”

He adds that in Selangor, the cost of development has gone up because the Selangor government has imposed a 30% development charge for change of land use, thus increasing the cost of a development. Also, building materials and labour costs have also gone up.

“By themselves, private developers will find it difficult to build affordable housing,” he says.

Yam adds that despite high costs, money is not the only issue. There is also the delivery of the products.

“Developers are like the fisherman and the government is like the fishmonger. We know how to catch the fish, but they don’t. Similarly, we should be the ones developing homes. All we need is the ease to deliver them,” he says.

How are we going to do it?
According to Yam, low-cost housing carries a stigma and is considered less desirable, a statement that is echoed by Iskandar.

“The government is forcing us to deliver low-cost housing but there is no demand for these types of products. There is no market for low-cost houses,” says Iskandar.

Currently, there are 800,000 units of low-cost housing in the country which translates to 20% of Malaysia’s housing stock. With low-cost housing becoming more of a menace to the country’s property supply, Yam suggests low-cost housing be a thing of the past.

“Instead of proposing the requirement to build low-cost housing, the government should consider replacing it with affordable housing,” he says.

Wong adds that there is even an oversupply of low-cost products. He proposes that the various government departments and government-linked companies contribute their landbank to private developers to build affordable housing.

“They have surplus landbanks which are not being utilised. The whole idea is to get the public sector to contribute the land and the private developers to develop them. Then, they sell these properties to the lower and middle-income groups,” he says.

Wong says preference should be for first-time homebuyers.

“This should be done through balloting, and you screen them to make sure they don’t own a house and they fall within the income brackets,” he adds.

Wong says if the government releases a portion of its landbank for affordable housing, it will contribute to increasing the supply of affordable homes, particularly in cities such as Kuala Lumpur, Johor Baru and Penang, where the demand for affordable housing is the highest.

He adds that the government should come up with incentives to encourage private developers to build more affordable houses.

“For each affordable home sold, offer tax incentives.”

Iskandar explains that at the end of the day, it’s the responsibility of the government to supply affordable housing, but developers will not run away from their social responsibilities.

“If you are serious in providing one million new affordable homes, then private developers can work together with the government and help deliver them, provided there is some form of incentive like tax exemptions, and then, it can be a success,” he says.

How are we doing now?
Whether PR1MA housing will be one solution to the country’s affordable housing issue remains to be seen, but Yam says things like this take time.

“We believe the government will make the right decision and we will take it as it comes,” he says.

“Our appeal to the government is to try not to make drastic changes because there is always the issue of uncertainty in the market that can affect genuine homebuyers,” he says. “The government needs to be wary of how they deal with speculative activity.”

The analyst adds that while the government has a good view of the current market conditions, the budget presented is usually not detailed.

“Over the past years, when the budget is announced, it’s usually very weak as there is no detailed explanation,” she says.

Wong says, “I’m sure the government will come out with some measures and incentives to create supply of affordable housing in locations that are in urgent need of them. If it’s not addressed in this budget, we hope it will continue to be addressed in the budgets to come until a solution is found.”

According to Iskandar, whatever the government does, engage the stakeholders.

“We want to work with the government and there’s a lot to be done,” he concludes.

 

This article first appeared in The Edge Malaysia Weekly, on September 30, 2013.

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