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Mandatory adoption of BTS will affect housing supply and prices

KUALA LUMPUR: Should the Build-Then-Sell (BTS) method be made compulsory in Malaysia, the country can expect to see a reduction in housing supply and impact prices in the near term, according to members of a panel discussion on the topic "Build-then-sell: the impact on property prices" at The Edge Investment Forum on Real Estate 2011 on Saturday, April 9.

The panellists were Bandar Utama developer See Hoy Chan Holdings Group director Datuk Teo Chiang Kok, Real Estate and Housing Developers Association (REHDA) Youth member Sam Tan who is also executive director of Ken Holdings and Kevin Lam, managing director and country head of personal financial services of UOB Malaysia.

The forum was presented by UOB Malaysia and supported by S P Setia Bhd.

The government is expected to make the BTS system mandatory by 2015. According to Teo, Malaysia will stand to see an estimated 70% drop in the number of developers if the BTS concept is implemented as it will have a huge impact on developers’ cashflow as well as many other factors.

“With about 70% less number of developers, the number of houses built will reduce dramatically. Demand will exceed supply. BTS is more suitable when there is no housing backlog,” Teo said.

Rehda Youth's Tan said BTS will compromise the delivery of affordable housing. “A developer who was able to build 300 houses under sell-then-build will only be able to build a third of that under BTS. "Supply for new housing will shrink as BTS is very capital intensive, especially with the escalating cost of land. Yes, the upside would be that housebuyers can see what they are actually buying and there will almost be no competition among developers.

“However, house prices will soar and supply of houses in rural and suburbs will be compromised,” Tan explained.

Housebuyers therefore must be prepared to pay significantly higher prices in properties, both the developers said.

Meanwhile, UOB's Lam said BTS would require developers to have deeper pockets.

"The current borrowing margin by developers is about 50% to 70% but if BTS were to be made mandatory, developers will face a longer gestation period which increases risk-based capital in new global banking standards," said Lam.

"When the exposure is open for a duration period that is much more than what it is now, it's likely that the cost of financing to developers will go up and developers will only be able to focus on one project at a time," said Lam.

"You have to ask considering the near-term impact of reduced supply and changes in property prices, who will this benefit?" questioned Lam.

He also put forward a few alternatives for policy makers including a segmented approach in which homes can only be marketed after completion of say, 50 to 60%.

In conclusion, he urged all stakeholders to work together to support the long-term sustainable growth of Malaysia's property market.

For the full coverage of The Edge Investment Forum on Real Estate 2011, read the April 18 issue of City & Country, the property pullout of The Edge Malaysia.

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