IT’S a known fact that the prices of houses in Malaysia, especially in urban cities like the Klang Valley, Johor and Penang have skyrocketed in the past decade. This has resulted in homeownership becoming more and more out of reach for the younger generation.
How did housing prices surge? Well, the blame has always been on profit-seeking developers who favour building overpriced houses which can increase their profit margins.
Besides infrastructure and building costs and developers’ profits, there is also the compliance cost which contributes to the higher property prices as it accounts for 20% to 25% of the overall development cost.
Compliance costs refer to all expenses a developer incurs in order to adhere to industry regulations which includes development charges, improvement service fund (ISF), strata title application and land conversion premiums. Typically, these costs increase as regulations that concern the industry increase.
As highlighted by FocusM in 2019, REDHA Institute chairman Datuk Jeffrey Ng pointed out that given the constraints developers have to work with today such as escalating land prices and the soft property market, it is about time compliance costs are stripped out of construction costs associated with building affordable housing undertaken by developers as part of the cross-subsidisation program imposed by the government.
Ng added that land is a scarce resource and to be able to do affordable housing on scarce resource is difficult.
“If affordable housing were to continue being a product developers have to offer, then all compliance costs associated with it ought to be removed,” Ng was quoted saying.
Khong & Jaafar managing director Elvin Fernandez has a different view on this. He told FocusM in 2019 that for the housing industry in general – not specifically to the affordable housing segment – there are three items at play to bring down house prices using market mechanism: compliance costs, infrastructure and building costs and developers’ profits.
“Bringing these three down will help in bringing house prices down in the long run through the market mechanism,” he pointed out.
Therefore, he opined that bringing the three elements down – or stripping them out for the affordable housing segment – is likely to bring house prices down only marginally as contribution of compliance costs accounts for the smallest portion of the three.
After Pakatan Harapan (PH) took over the Government in 2018, the then Housing and Local Government Minister Datuk Zuraida Kamaruddin (under PH) was reported saying that the Government is mulling a reduction in compliance costs for affordable housing developments.
She shared that the Government has “principally agreed” that utility companies will construct their own amenities to reduce the compliance cost, thus making houses more affordable.
However, the change of Government in 2020 has put stripping out compliance cost at the back burner despite there are still ongoing efforts and commitments from the ruling party to provide affordable housing to B40 and urban poor groups.
In the city where scarcity of land has driven up the price of land, one will wonder whether affordable homes still be built. And this raises the question if stripping out or reducing compliance cost will ever bring down housing prices? – Aug 25, 2021
Photo credit: Mashable SEA
