Time to fine-tune the bumiputera discount

EVERY responsible government should ensure its citizens have a roof over their heads. In recognising this, the Malaysian government has put in place a number of policies to assist the rakyat in acquiring homes, for example the Bumiputera Housing Policy.

This policy was introduced as part of the New Economic Policy in 1970 to reduce the income disparity between the bumiputeras and non-bumiputeras. In a nutshell, the bumiputera discount required property developers to:

* Reserve a certain percentage of their units for sale exclusively to bumiputeras; and

* Sell the bumiputera quota units at a discount.

As land matters are under the purview of the respective state governments, the Bumiputera Housing Policy varies from state to state with the median being 30% for bumiputera quota and 7% for bumiputera discount.

However, as the bumiputera quota is more of a social issue and complex in nature, this article will only deal with the bumiputera discount.

The bumiputera discount has been credited by many quarters, including the National House Buyers Association (HBA), for enabling bumiputeras to acquire properties, especially in the urban and suburban areas and reduce the disparity of property ownership between bumiputeras and non-bumiputeras. However, after more than 40 years of its introduction, is such a blanket policy still relevant?

Malaysia has grown by leaps and bounds since 1970 and the income level of the vast majority of bumiputeras has improved tremendously. While it cannot be denied that there are still many underprivileged bumiputeras in need of assistance, the bumiputera discount may not be reaching them.

Many say the discount is being abused by affluent bumiputeras, resulting in the cost of property ownership going up for both bumiputeras and non-bumiputeras.

As the discount applies to all categories of property and there is no limit to the number of properties entitled to it, this noble policy is being exploited in a number of ways.

Luxury homes
The bumiputera discount was implemented with the good intention of assisting underprivileged bumiputeras acquire their own property. Unfortunately, when the policy was introduced, sufficient guidelines were not put in place to prevent its abuse and today, the bumiputera discount is implemented across the board, from low-cost properties to luxury homes costing more than RM1 million.

While it is understandable for underprivileged bumiputeras to be given some form of assistance in acquiring homes, it is not acceptable when affluent bumiputeras demand the same discount for luxury homes. To put things in perspective, for bungalows priced at, say, RM3 million, a 7% discount comes to RM210,000 — enough to provide three low-cost apartments of RM60,000 each to deserving bumiputeras.

Multiple homes
Due to a lack of clear guidelines, there is currently no cap on the maximum number of properties bumiputeras can buy at a discount. This enables affluent bumiputeras to acquire many homes at a discount, thus depriving underprivileged bumiputeras of potential homes.

Commercial property
As mentioned above, the bumiputera discount was intended to help low-income bumiputeras buy homes, that is private dwellings. However, this concept is also being used in the buying of commercial properties — properties that are used for the purpose of business, not as private dwellings. There is also no cap on the price or number of commercial properties eligible for the discount.

Here too affluent bumiputeras are taking advantage of the housing policy to acquire commercial properties at a good discount and reselling them for a gain. This drives up the overall cost of business, resulting in a higher cost of living for the rakyat.

Property developers are profit-orientated entities. Hence, when a percentage of their units is sold at a discount, they mark up the prices of the remaining properties to ensure their expected level of profit is met. This increases the cost of property ownership for the non-bumiputeras.

While it is true that "those who are more fortunate should help those who are less fortunate", non-bumiputeras should not be subsidising affluent bumiputeras in acquiring multiple properties. Hence, the HBA is urging the fine-tuning of the bumiputera discount to ensure that this noble policy reaches the right target group and is not abused. It recommends the following:

* Price cap and type of property. As the discount is meant for low-income bumiputeras, there should be a maximum price cap of, say, up to RM500,000. This could vary from state to state and from urban to rural areas as it is widely acknowledged that properties in the Klang Valley, Penang, and Johor are more expensive. The type of properties should exclude luxury homes, such as bungalows, semi-detached houses and penthouses/apartments. This would mean that only link homes and condos/apartments that cater for the masses and less affluent buyers will be eligible for the bumiputera discount. In this way, the discount will reach the right market.

* Maximum number of properties. The vast majority of the rakyat can only afford to buy one property in their lifetime, and some are fortunate enough to be able to buy an additional property for long-term investment and/or to fund their children's education. Hence, the maximum number of properties eligible for the bumiputera discount should be capped at two. This will prevent affluent bumiputeras from buying multiple properties at a discount and preventing the less fortunate bumiputeras from acquiring any of them.

* Only private residences should be eligible. Bumiputeras who can acquire commercial properties for the purpose of business cannot be considered less fortunate and deserving of government aid. There are various other government agencies, such as Mara and the Malaysian Industrial Development Authority, that are better equipped to assist aspiring bumiputera entrepreneurs.

The HBA believes making a few changes to the bumiputera discount will lead to a healthier property market that will benefit both the bumiputeras and the non-bumiputeras. The sector has long been considered an engine of growth for the economy and it is in our best interests to ensure the industry is not bogged down in outdated government policies.

The HBA further urges the government to give first-time non-bumiputera homebuyers earning less than RM5,000 a month a one-time discount of 7% on private dwellings that cost less than RM400,000. This will help Prime Minister Datuk Seri Najib Razak achieve his PR1MA vision, so that deserving rakyat will not be deprived of the fruits of our successful government whose motto is: "Those who deserve it should get it."

The reason RM5,000 was chosen is that the government saw it fit to increase the Employees Provident Fund contribution of employers by 1% in Budget 2013 and it will help middle-income families hit by rising costs to acquire their first home.

Such a policy will also encourage property developers to build more affordable homes, which will also benefit the bumiputeras.

This memorandum dated Oct 16, 2012 was prepared by the National House Buyers Association and submitted to the government recently. This story first appeared in The Edge weekly edition of Nov 5-11, 2012.