City & Country: My space: To sell or not to sell?

MR HAN (not his real name) runs a consultancy firm from his 4-storey shopoffice in Kuala Lumpur. His team operates from the upper floors of the building that is more than a decade old while the ground floor is leased out to a financial institution.

He is now doing some hard thinking. There is an unexpected offer to buy the building and it comes with an option for him to stay on as a tenant.

So, what's keeping him from jumping into the deal?

The government is under pressure to bring down property prices but Mr Han, like most, is not convinced this will happen for properties other than affordable homes, which are subsidised. If he were to cash out now, he is not sure how he can grow or hedge the proceeds from inflation.

His concerns are not totally misplaced. Consider the following:

On Sept 2, a media briefing by the Real Estate and Housing Developers' Association Malaysia (Rehda), held in Selangor, was slightly delayed.

"In the blink of an eye, things have changed..." Rehda president Datuk Seri Michael Yam said on the need to make last-minute amendments to concluding remarks to accompany the findings of Rehda's property industry survey for January to June, which were to be presented.

To effectively reduce house prices, the government needs to review the cost of doing business

He was referring to recent events, domestic as well as abroad, and their expected negative impact on the cost of property development and investor sentiments.

The list of issues identified by Rehda includes capital flight stemming from the strengthening currencies of developed nations, softening economic growth in China and Asean and the rising cost of doing business. Another challenge is the anticipated introduction of more property cooling measures involving end-financing rules and the real property gains tax. (Note: The briefing was held before the announcement of the Ron 95 and diesel price hike.)

No one doubts the need to crack down on illegal workers but, ironically, that also puts stress on foreign labourers who are here legally. Yam laments that "even the legalised workers are running".

Property prices are going up much faster than wages, but the reality is that the price tag is the sum total of costs aplenty.

In reality, putting pressure on developers alone to reduce house prices will not get us very far. What is urgently needed is for the government to review the cost of doing business.

For the first six months of the year, half of the 150 developers in 12 states surveyed by Rehda reported a rise of 5% to 10% in the overall cost of doing business, compared with the second half last year. None reported a drop while the rest either said there was no change or that there was no comparison available.

The cost of doing business manifests itself in tangible and intangible forms. Rising land, labour and building material costs are apparent, but not intangible costs like unnecessary delay in government approvals at different levels, a lack of transparency in the release of unsold bumiputera units, the need to provide affordable housing and the mandatory capital contribution.

Why are developers - read buyers in this case because the added cost will ultimately be passed on to them - required to subsidise the operations of the likes of Syabas, a privatised entity?

Developers also have to build affordable homes, and the cost will again be passed on to purchasers. However, this form of cross-subsidy will not serve its purpose as long as there is no control over the resale of such affordable homes on the secondary market.

To effectively reduce house prices, it is imperative that the government reviews the cost of doing business. In this case, cracking the whip is much less effective than making the developers its partners.

While Rehda says it is generally optimistic about the outlook for the Malaysian property market in the next 12 months, Yam has this to add: Brace for greater foreseeable headwinds.

We do not wish to see the property sector grind to a halt. Just ask those who were around during the 1997/98 Asian financial crisis for what that means.

Au Foong Yee is managing director of The Edge Communications Sdn Bhd

This article first appeared in The Edge Malaysia Weekly, on September 9, 2013.