Are there too many Bentleys and Mercedes – No Are there too many RM1mil houses –
KHAZANAH Research Institute research director Suraya Ismail uses the car metaphor to describe the Malaysian housing market.
Are our roads clogged with too many Bentley and Mercedes-Benz cars? No. On the contrary, our roads are filled with a range of cars to suit every income bracket.
The same should apply to houses – there should be housing available to all income brackets.
If houses were cars, there are simply too many Bentleys and Mercs and too few Perodua cars.
In a nutshell, the various proposals of late – from developers giving out loans, banks extending housing loans from 35 to 40 years and the Employees Provident Fund (EPF) allowing contributors to take out more from their retirement fund to buy houses – are premised on increasing debt levels to buy these Bentleys and Mercs.
“It is demand-driven. These proposals are to ensure that people have money to buy expensive houses.
“The intent may be good, but it will not solve the affordability issue because these proposals only result in house buyers taking on more debt, which they cannot afford.”
As for taking from the EPF, the majority of contributors do not have enough for retirement. They should not use their retirement fund in this way, she says.
“Whereas the stand my research is advocating is to make sure there is adequate supply of reasonably priced houses and finance will take care of itself,” says Suraya.
“The stakeholders must ensure supply is efficient – there is a house available to suit every income bracket – and issues about finance will solve themselves.”
Suraya says prices should be three times the annual household median income, which means that if a household earns RM8,000 a month, then the price would be RM288,000 (RM8,000x12x3). This is the price that particular household can afford.
This is not Khazanah’s benchmark, but is used in other countries as well.
The median monthly household income for Malaysians in 2014 was RM4,585 (4,585x12x3 = RM165,060). This figure tends to vary according to locations. The Statistics Department said Kuala Lumpur recorded the highest median monthly household income of RM7,620 as at June 2015, which equates to the household’s affordability being capped at RM274,320.
“But how many developers are building houses at such prices today?” she asks.
An efficient market
An efficient market is where at each price bracket – RM500,000, RM400,000 and RM300,000 – there is a product available. She says property development, being a multi-billion-ringgit industry, has a social element to it and must be more efficient.
In order for this to happen, prices have to first go down. Secondly, the technology used must be understood.
Whatever method or technology developers bring in, they cannot lay the blame on the methods or technology, she says.
Suraya adds that there are developers who have reported that industrial building systems (IBS), a modernised construction method which supposedly reduces construction time, have increased cost by some 30%.
The design of the building may be unsuitable and the workers may not be trained, she says.
“Modern methods of construction will help the industry to mature and cost will come down. But don’t try to cut short the process,” she says.
Therefore, the context of any measures should be to bring prices down, and not about providing finance to buy expensive products. Suraya says developers have been saying they do not have the finances to migrate to the build-then-sell method.
If developers can afford to give loans to house buyers to buy their houses, then maybe they should focus on the build-then-sell model.
A healthy eco system
Suraya says she understands the private sector has to make a profit and it is possible to make a profit even with affordable housing as done in other countries, where developers or house builders build specifically for nurses or teachers.
But if one were to look at the house supply in Malaysia, all – if not most – of the developers are building expensive houses beyond the reach of most.
Even those with a household income of RM8,000, RM10,000 and RM12,000 are seeking Government assistance to buy houses priced at RM200,000, RM300,000 and RM400,000, respectively, Suraya says, referring to two state Governments.
The issue is that half of the state population earns less than RM4,000 a month. So such measures do not really help the needy.
“Let us focus not on finance but on supply,” she says.
Suraya advocates having competition laws to create an ecosystem that provides products of different price ranges.
“There should be more players who can provide different products,” she says.
There is also the tendency in Malaysia to compare our housing/loan situation with overseas markets.
It is incorrect to do so because in Australia and the United States, developers practise the build-then-sell method. They do market studies and take the risk that if they do not provide quality products, people will not buy.
However, in Malaysia, we are selling a piece of paper. It is, therefore, not right to make such a comparison.
“I appreciate that we have this method of selling houses. So fine. I accept this, but let us increase productivity by modernising our property industry. Houses taking over two years to build can be reduced to six months if we modernise the way we construct by using the IBS.”
As for the influx of China developers, especially in Johor, Suraya says they have a better margin because they use modern technology and their workers know how to execute on site, which helps to bring down construction costs.
So we have to:
a) look at supply,
b) look at modernising the industry, and
c) we should not be looking at finance first before we do (a) and (b).
Suraya says there is a social element to housing and it is the duty and responsibility of every developer to provide decent housing, even those at the bottom of the price list.
“If they care for fellow citizens, they will build better housing. We must make it affordable generally and that affordability should be tied to your income.
“Developers are contributing to social mobility and the economy when they provide good decent housing because over the long term, more children from that segment will then buy your houses,” she says.
Suraya says the private sector is the backbone of the country’s economy, and sometimes, the Government needs to regulate and nudge it in a certain direction.
“If these partnerships are done properly, I am sure making housing affordable is something we can look forward to. The private sector is motivated by what shareholders want, to accumulate wealth, but the end does not justify the means, particularly when it is possible to be profitable and yet provide decent and affordably priced housing.”
Suraya says nobody has a narrative on the subject because nobody has done any research on it. Research is difficult and nobody wants to solve the problem.
“We must each ask ourselves what is the problem. As an individual, what can I do?
“Because the buck stops here. Each of us has a role to play,” she says, adding that in this current situation, providing more finance is not the solution.