MALAYSIA’S housing market has long been shaped by policies aimed at promoting equitable access to property ownership, with the Bumiputera discount standing as one of the most significant measures.
While this discount ensures that the Bumiputera community has the opportunity to own property at a lower cost, it has also sparked discussions about its effectiveness, particularly when wealthier Bumiputera individuals benefit from a discount that could better serve those in genuine need.
As Malaysia continues to strive for a more inclusive economy, it may be time to re-evaluate how the Bumiputera discount is applied, ensuring that it achieves its intended purpose of supporting those most in need, while also streamlining the process for developers and buyers alike.
The current system and its challenges
Currently, developers are required to provide a discount to Bumiputera buyers, typically ranging between 5% to 15%, depending on the state.
While well-intentioned, this system has its limitations. In some cases, wealthier Bumiputera buyers who do not necessarily need the discount, benefit from it while lower-income Bumiputera families, for whom the discount could make a significant difference, might struggle to access housing due to market constraints.
Moreover, from a developer’s perspective, the discount policy can complicate sales processes, as the price differential often limits their flexibility when marketing properties.
This not only affects the profitability of projects but also delays the overall process of property sales, as developers face hurdles in selling their Bumiputera quota units.
A proposed solution: a special trust fund for Bumiputera housing
One potential solution to address these challenges is the establishment of a government-managed Special Trust Fund for Bumiputera Housing.
Under this system, developers would no longer be responsible for directly offering discounts to eligible Bumiputera buyers at the point of sale.
Instead, developers would gradually pay the equivalent of the Bumiputera discount into the special trust fund based on progress billing throughout the development of the property.
In this proposed approach, the final Development Order (DO) approval typically requires 30% of units to be allocated to Bumiputera buyers.
As the developer receives progress payments from buyers, they would pay the equivalent of the 30% Bumiputera discount into the trust fund, ensuring that by the time the project is completed, there is no outstanding amount owed.
This guarantees that the developer has fulfilled their obligations, and in the event that Bumiputera buyers are not available to take up all the units, the developer can seamlessly release these units to non-Bumiputera buyers once the project is completed.
For the buyer, this means paying the full Sale and Purchase Agreement (SPA) price, just like any other purchaser.
Bumiputera buyers who qualify for the discount would then apply to the trust fund to receive the discount amount after purchasing the property.
Additionally, if the funds in the trust are not fully claimed by eligible Bumiputera buyers, the remaining amount could be repurposed to support other initiatives aimed at improving Bumiputera homeownership in the future.
These could include programmes such as down payment assistance, affordable housing schemes, or financial literacy programmes to help Bumiputera families secure home loans more easily.
Advantages of this approach
- Targeted assistance for those who need it most: By creating an application process for the discount, the government can ensure that only deserving Bumiputera buyers – such as first-time homebuyers or those with a genuine financial need – receive the discount. This would eliminate the issue of wealthier individuals benefiting from a policy meant to provide financial relief to those with fewer resources.
- Simplifying the sales process for developers: Developers would no longer be encumbered by unsold Bumiputera quota units or the financial strain of offering discounts upfront. They would continue to sell properties at the full SPA price while fulfilling their obligations by contributing to the trust fund in line with progress payments. By the time the project is completed, all discounts would have been paid off, allowing developers to release any remaining Bumiputera quota units to non-Bumiputera buyers without delay or complications. This simplifies the process and minimises administrative burdens.
- Increased transparency and accountability: A government-managed trust fund would enhance transparency, as there would be a clear and regulated process for determining who qualifies for the discount. Additionally, this could help prevent abuses of the system, where properties are sold at a lower rate to individuals who may not be in genuine need of assistance.
- Boosting confidence in the housing market: With a streamlined process and clearer guidelines for discount allocation, both developers and buyers could benefit from greater confidence in the housing market. Developers would have a more predictable cashflow and fewer unsold units while buyers would experience a more transparent and equitable system.
- Encouraging responsible homeownership: By applying for the discount through the trust fund, buyers are encouraged to take responsibility for their financial situation and demonstrate a need for assistance. This system fosters a sense of accountability while still providing critical support to those who need it.
- Ensuring fair and timely release of Bumiputera units: By the time the project reaches completion, developers would have already paid off the required discount amounts to the trust fund, ensuring that no outstanding obligations remain. This paves the way for a smoother and more straightforward process when releasing Bumiputera units to non-Bumiputera buyers, ensuring fairness in the housing market.
- Reinvestment in Bumiputera homeownership: Any unused funds in the Special Trust Fund for Bumiputera Housing can be repurposed for future initiatives aimed at improving Bumiputera housing ownership. This ensures that the fund continues to serve the community’s housing needs, even beyond the original project scope.
Conclusion
The Bumiputera discount has played an essential role in ensuring equitable access to property ownership in Malaysia.
However, as the housing market evolves, there is a clear opportunity to improve the current system to better serve its intended beneficiaries and streamline the process for developers.
A special trust fund for Bumiputera housing that collects progress payments from developers and allocates discounts to deserving Bumiputera buyers offers a practical, transparent, and effective solution that addresses both the financial and administrative challenges posed by the current system.
By embracing this approach, Malaysia can ensure that the Bumiputera discount continues to fulfil its original purpose while promoting a more efficient, fair, and transparent housing market.
Additionally, this method ensures that developers can meet their obligations in a timely manner, simplifying administration and reducing unnecessary delays in the property market, while also ensuring unused funds benefit future Bumiputera housing initiatives. – Oct 15, 2024
See Kok Loong is the executive director of Metro Homes Realty Berhad.
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.
Main image: Pexels/Jakub Zerdzicki
