Property
Building blindly
Joseph Wong 
advertisement[x]

In recent years, many prop erty developers have been focusing on building affordable homes following the government’s call to provide for the less affluent market.

While it is true that there are many developers who appear to be doing well with convincing take-up rates of 80% to 100%, there are also just as many who are facing difficulty in selling their units.

“Just because there is strong demand, it doesn’t mean that affordable homes are in under-supply,” says Koh Cha-Ly, founder and CEO of Propertypricetag, a data company that cleans and analyses a large amount of city data through property algorithms.

“You can see this in the data collected (by the National Property Information Centre or Napic), that there is an overhang of affordable properties,” she tells FocusM.

According to Napic data, there is an overhang of 12,771 small-office-home-office (SoHo) and service apartment units as of H1 2018 compared to 6,927 units as of end 2017.

This is an increase of 84.4% and with another unsold 49,444 units still under construction as of H1 2018, the overhang is expected to increase unless there is a spike in new buyers in the market.

 

Why the overhang?

Cha-Ly explains that the overhang is partly due to the government’s effort to ensure that the lower and middle class groups are able to buy homes by encouraging developers to build more affordable homes.

“This creates a problem as a single silver bullet solution cannot solve everything,” she said at an event recently.

Since 1982, private developers have been required to allocate 30% to low-cost housing with a controlled selling price when they develop new projects.

However, location appears to be the issue as the low-cost or affordable houses may not be in an area where buyers are willing to relocate to.

Affordable homes are generally tucked away in the outskirts or in areas that are less than desirable as the prime locations are used to build higher end homes or for mixed development like transit-oriented developments (TODs).

“Research shows that affordable home buyers are unwilling to buy properties that are more than 11 km away from their present location,” says Cha-Ly.

The Real Estate Housing and Developers Association (Rehda) concurs.

In fact, its research arm, Rehda Institute, points out that the “one size fits all” policy has led to a mismatch between demand and supply that has subsequently resulted in unsold units.

In September this year, Rehda Institute issued a report called “Affordable Housing – the Game Plan Transformation” which identifies nine structural problems and its proposed solutions for affordable housing.

Among the identified problems are rigid housing policies and cross-subsidies which have been practised for decades in Malaysia.

Cha-Ly points out that this was also the cause of the price fluctuations, which saw escalating prices beyond buyers’ reach.

Coercing developers to build affordable home without justifying data is not advisable, she says.

However, there are many developers that have done their “homework” and have fully sold their affordable homes, she notes.

Nevertheless, many developers say it is high time for the government to review the rigid housing policies including the imposition of quota and price controls on the property industry.

According to the report, M alaysia is the only country where the private sector faces a compulsory affordable housing quota across the board nationwide.

Price issues

Another issue over the insistence on new affordable projects is the pricing of the units, says Cha-Ly.

“The pricing of the new units ranges between RM350,000 and RM500,000, which is roughly the same as the sub-sale market,” she points out.

This means that the new units are in direct competition with the sub-sale market and this is another reason for the overhang, she contends.

The sub-sale market has an advantage in that owners can move into these homes relatively quickly, as opposed to ones that are still under construction. Conversely, the newer units often have better facilities and equipment.

“However, the owners of the older homes will be hard pressed to get a better price for their homes as the newer ones are priced closed to their value.

“So, the opportunity to sell at a higher price for a bigger and better home is restricted,” says Cha-Ly.

The current sluggish property market has not helped the situation. Both the volume and value of transactions have dropped.

The residential volume of transactions for H1 2018 (94,202 units) is 0.8% lower than in H1 2017 (94,969 units). Similarly, the residential value of transactions for H1 2018 (RM31.66 bil) is 3.6% lower than the corresponding period in 2017 (RM32.86 bil).

Overall, the volume of transactions for H1 2018 (149,889 units) is 2.4% lower than the corresponding period in 2017 (153,526 units).

Similarly, the overall value of transactions for H1 2018 (RM67.74 bil) is 0.1% lower than that in H1 2017 (RM67.83 bil).

“Then there is the issue of maintenance,” she says.

Norzaini Noordin, senior deputy director of DBKL’s Project Implementation and Building Maintenance Department, points out that maintenance is necessary to ensure a steady rise in the value of a property.

“One of the reasons why a property’s value is unable to increase is due to poor maintenance,” she says.

Ideally, a property can escalate in value so that the owner can dispose of the current home and upgrade to a bigger and better one, she says.

But sometimes that does not happen due to poor upkeep, pointing out that it is mainly due to the joint management body (JMB) not having the funds.

Observers say the lower income group is usually unable to afford the maintenance fee leading to JMBs’ inability to cope with the rising maintenance costs.

“It is a given. Equipment like lifts break down. These can be costly to fix,” says RCMC Sdn Bhd registered building manager Richard Chan.

He recounts a time when he was collecting overdue fees from owners and one owner just gave him a parang.

“This old man asked me to kill him as he can’t afford the thousands of ringgit that is owed to the JMB.

“Some of these people are earning just enough to meet their daily needs,” he tells FocusM.

This is the main reason why low-cost homes tend to see a tiny hike in property value if any, says Char-Ly.

“Good maintenance is key in ensuring a property’s value,” she says. FocusM



This article first appeared in Focus Malaysia Issue 306.