Home ownership a pipe dream for middle income group


TA01500Purchasing a house these days in urban areas especially by the middle income group is growing to be a huge task.

As prices of residential properties have been on the steady rise – faster than the growth of income over the years – their ability to afford a “dream house” is financially beyond their reach.

According to Khazanah Research Institute (KRI), Malaysia’s housing market has gone beyond the level of affordability by most Malaysians.

KRI revealed in August that Malaysia’s average house prices are more than four times the median income of its population.

In the report, KRI pointed out that at the national level, average house prices were 4.4 times the average annual household income in 2014.

It said an ‘affordable market’ should have a ‘median multiple’ (average house prices as a multiple of average annual household income) of three times.

The three times median multiple, it said, signalled that the property market provides a distribution of housing and house prices that are subject to minimal distortions – housing supply is responsive and able to meet effective demand.

It outlined unaffordable housing markets are the ones in which supply either falls far below demand, or is too inelastic to changes in demand.

“It is a measure of how affordable the housing market as a whole is performing. It is not a measure of what any particular household can afford as that would depend on that particular household’s circumstances,” it said.

KRI observed the middle-income households are often ineligible for public low-cost housing programmes and yet unable to afford housing supplied by private property developers.

As a result, the higher than average house prices are putting off those in the middle income group the desire to buy a residential property what more to think of the ability to service the mortgage loans.

KRI believed the answer to making housing more affordable lies in improving the elasticity of housing supply.

In other words, it means making the supply of housing more responsive to the needs of all sections of population.

Therefore, it suggested that the country needs to reform the supply-side for housing and strengthen market efficiency in the property sector by developing measures to plan for a steady supply of housing at affordable prices.


Measures to cool down property prices

Noting that property prices, especially resident properties have been on the uptrend in the past few years, the government had in Budget 2013 in September 2012 proposed to increase the Real Property Gains Tax (RPGT) rates for the disposal of real property and shares in real property companies.

With effect from January 2013, the government said an individual who wishes to dispose a property within two years will be charged RPGT of 15 per cent.

In the following Budget 2014, the government further imposed a RPGT of 30 per cent for an individual who wishes to dispose a property within three years with effect from January 2014.

The government explained that the measure was aimed at curbing speculative activities in the real property market.

With higher tax imposed for the disposal of properties, it is believed that property speculators will have less opportunity to ‘flip’ the number of properties and sell them at higher prices.

Subsequently, Bank Negara Malaysia (BNM) in November 2013 had also issued two guidelines to banks as a measure to tighten lending practices.

The two guidelines include curbs to Developer Interest Bearing Schemes (DIBS) and enforcement of stricter loan-to-value (LTV)

Market observers noted that the two guidelines were aimed at reducing speculative demand in properties.

Deputy Finance Minister Datuk Chua Tee Yong during the 19th Malaysian Banking Summit in June 2015 said the tightening measures on loans implemented by BNM in 2013 has shown positive effect in narrowing the gap between property price growth and income growth.

He further observed that in recent years, after the tightening measures were implemented, the property market did not grow so significantly to double-digit growth yearly which created imbalance as the people could not afford to buy houses.

Chua noted the cooling measures also helped to slow down household debt growth and believed BNM would made continuous assessment to address the high household debt to gross domestic product (GDP) level.

Meanwhile, at the same event, Asian Strategy and Leadership Institute (ASLI) chief executive officer Tan Sri Michael Yeoh observed that there was a sharp slowdown in the property sector.

He observed property sales had dropped and the secondary market was at a standstill.


Gloomy market outlook

Malaysian Institute of Estate Agents (MIEA) president Siva Shanker believed that the outlook of the property market in Malaysia looks gloomy this year.

He added that it was not just the property market which is slowing down but other industries as well are experiencing slower growth period.

He attributed the sluggish growth to the slowdown of the world economy growth and uncertainties over the country’s economy.

“When the report of the property market for 2015 is released (next year), it would probably show that the property market has contracted.

“The volume of property transactions might fall but I do not see prices of properties coming down (sharply),” he told BizHive Weekly through a phone interview recently.


Similarly, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) in a report dated Oct 5 citing the National Property Information Centre’s (NAPIC) statistics for first half 2015 that the value of property transaction in the first half has declined by six per cent year-on-year (y-o-y) to RM77.08 billion.

The research firm observed the decline in second quarter (2Q15) was worst than 1Q15 reduction of 2.3 per cent y-o-y.

As for property transaction volume, MIDF Research noted the number has declined by 3.5 per cent y-o-y to 186,618 in 1H15.

It observed the same trend occurred for volume in which in 2Q15, the volume of property transaction slipped by 7.6 per cent y-o-y as compared to 1Q15 which showed 0.9 per cent y-o-y growth.

Thus, with the data shown by NAPIC, MIDF Research opined 2015 sales by property developers is likely to experience a decline y-o-y.

MIDF Research explained that consumer is likely to defer the purchase of big item in the near term due to the weak consumer sentiment arising from the implementation of the Goods and Services Tax (GST) and the weakening ringgit.

As a result, it believed the trend of lower new property sales y-o-y by property developers is likely to continue in 4Q15 and going into 1Q16.

Moreover, MIDF Research said applications for property financing also did not paint a rosy picture.

The research firm noted the latest BNM statistics showed that application for purchase of property for the first eight months of 2015 had declined by seven per cent y-o-y to RM203.13 billion.

“For August 2015 against the same month last year, it has declined by 12 per cent y-o-y to RM25.68 billion.

“This is worse than July 2015 data which show four per cent decline y-o-y.

“On a month-on-month basis, the data show decline of three per cent,” the research firm said.

In spite of this, Siva opined that the property market could stage a recovery over the medium term.

“The property market is undergoing a period of consolidation at the moment.  “We believe there could be slight improvement for the property market in 2Q16 and perhaps better going into the second half of 2016. “The property market could resume its growth in 2016 to 2017,” he believed.

Steady in Sarawak

For Sarawak, in particular Kuching, CH Williams Talhar and Wong (WTW) in its 2015 Property Market Report said the residential sector in 2014 has remained stable with steady transaction volume.

However, the real estate services company observed property prices for the residential sector continued to rise with prices for high-end properties surged substantially.

It observed prices of housing units in prime lo­cations have remained high, past the RM500,000 threshold for double-sto­rey terraced units and more than RM1 million for the semi-detached units.

In spite of that, WTW said take up rates of new housing have slowed down further in 2014 but market transaction activities in­cluding secondary market has remained stable.

“2015 is expected to reflect a similar scenario with slow-down in sales vol­ume in view of further costs or price in­flation and the implementation of GST.

“Nonetheless, prices are anticipated to still go up, albeit at a lesser rate,” WTW said.

As for high-rise residential development, WTW said the condominium sector continued to outshine the rest of the sectors with 1,000 plus units being completed in 2014 and another 5,000 units either under construction or undergoing earthworks which would increase the supply by another 50 per cent in the next two years.

The real estate services company noted condominium units at the development stage range from 1,000 to 3,000 square feet each and can command rentals between RM1,500 and RM3,000 per month, depending on location, furnishings and unit size.

It observed prices for condominium units continued to record increases of be­tween 10 per cent and 15 per cent for 2014, with prices as high as RM700 per square feet (psf) for units at the Sapphire and Lagenda.

WTW noted take up rates of apartments remained steady between 50 per cent and 70 per cent within a year of launch.

It highlighted higher sales for more affordable apartment units of below RM400 psf, such as those in the Stutong area were all snapped up within a month after being launched.

“The condominium sector is expected to continue to enjoy good take up rates as well as command an increase in prices in 2015,” it forecasted.

With prices of residential properties projected to continue trending upward, WTW believed first time home buyers will find it increasingly tough to purchase a house at the current market pricing.

It observed their tendency were to buy houses that are built much further away from the city centre due to affordability issues.

WTW said affordable houses were general­ly priced below RM400,000 and those were either constructed in secondary areas or not matching the preference of first time house buyers.

The real estate services company pointed out prices for semi-detached houses in Kuching have breached the RM1.5 million mark due to the availability of land and rising construction costs.

It further explained that the high price was attributed to Sarawak having a lower density development guidelines compared to other states in Malaysia.

As such, WTW welcome a review of the development density to allow for more affordable homes in the market over the long run.

Strong demand for homes especially affordable houses

Despite the less sanguine picture on the outlook of the property sector in the near future, a niche segment within the property market which still attracts demand is affordable housing.

Renowned international property speaker and REI Group of Companies chief executive officer Dr. Daniele Gambero noted that there is a strong demand for homes in Malaysia.

Based on the estimates conducted by his firm, he conservatively calculated that there is a need to build 3.3 million units of houses by 2020.

However, Gambero noted that property developers throughout the country can just deliver 150,000 units of houses a year.

This means that there is a shortage of supply of houses while the demand is rising due to increase in population.

Additionally, he said Malaysia is facing a dilemma in the affordable housing segment as the middle income group could not afford to purchase a residential property as the prices were too expensive.

Hence, Gambero said, “The focus by property developers towards affordable housing is addressing the right market demand for the housing market.

“This is the segment of the market where the demand is originated from,” he addressed property enthusiasts during a talk at Borneo Convention Centre Kuching here last month.

Gambero believed that the affordable housing segment will be the focus by property developers in the near future as it has emerged as the new opportunities for them to tap into.

At the same time, Sarawak Housing and Real Estate Developers’ Association (Sheda) also believes that affordable housing has become a good potential market for developers to serve.

Its president Joseph Wong said, “Sheda believes that houses can and should be made available across all income groups.  “Sheda believes we have a solution that will address this concern.  “We call it the Sheda Affordable Housing Scheme,” he said during the opening of Sheda Property Expo 2015 recently.  Earlier this year, Wong said the association is keen to work with the state government in providing affordable homes to the middle income group. For that, he said Sheda hoped the state government can relax some of the existing criteria in the building of residential houses for the construction of affordable homes. He disclosed the criteria include reducing front or rear setback requirement by three metre for landed development, removal of density control for residential development, adoption of ‘plot ratio’ density for high-rise residential development and removal of the existing mandatory low-cost house requirements or proposed levy quantum. Wong observed there is an increasing demand for affordable houses in Sarawak as those earning between RM3,000 to RM5,000 a month could not buy a house. He pointed out that there are 30 per cent to 40 per cent of the public that are not eligible to apply for low-cost housing as their income level have exceeded the requirements yet could not buy houses which are being sold at market prices as the prices are expensive. Therefore, he said Sheda would like to work with the state government to come up with a solution to build affordable houses. Wong also revealed that Sheda has approached some of the property developers in Sarawak and they have expressed keen interest to build affordable homes. He believed that if the proposal can be approved, Sheda is looking to build 10,000 units of affordable houses throughout Sarawak in Kuching, Kota Samarahan, Sibu, Bintulu and Miri over a period of five years with prices of RM250,000 and below. Wong estimated that the state’s economy will be injected with a total gross development value (GDV) of RM2.5 billion in the next five years if the plan to build affordable housing is approved. He further noted that the state and federal revenue will benefit from council assessments, quit rent, land premiums and Goods and Services Tax (GST) which the developers will have to absorb. In response, the Ministry of Housing said it is studying the proposal brought forward by Sheda to build affordable houses. Minister of Housing Datuk Amar Abang Johari Tun Openg said he will make an announcement on the proposal soon. He explained that his ministry is currently evaluating Sheda’s proposal and find tune a solution that could benefit both parties especially to house buyers. He noted the affordable housing segment is one of the largest segment in the property market which has the most buyers and has big potential to be developed. On another note, Wong revealed that the demand for residential houses in Sarawak has remained healthy as demand has outnumbered supply.

Wong revealed the number of houses completed within a year in Sarawak ranges between 5,000 units to 8,000 units while there are still many people who are looking to buy houses. Moreover, he encouraged the public to invest into buying a residential unit as he observed that house prices generally move upward over the years. From his observation, Wong noted house prices have tripled since the past 20 years due to increasing cost of building materials, labour, compliance cost and the price of land.

Developing the Property Sector in Sarawak

As housing is a social well-being of the people, the state government is committed to develop the property sector as an important part of the economy.

Chief Minister Datuk Patinggi Tan Sri Adenan Satem said the property industry is an important component in the overall development of Sarawak and its growth should be in tandem with other developments happening throughout the state.

Thus, he said the state government will address concerns Sarawakians over the lack of infrastructure, the need to open up more land for various commercial activities and the impact rural-urban migration on development plans and housing prices throughout Sarawak.

“A housing model does not only look at the number of houses built or the quality of materials used. “It needs to be able to chart the future of housing development with all its permutations, complement the overall economic plans of the state, enhance Sarawak’s racial integration and facilitate family, neighbourhood and other societal ties,” “It is not easy to formulate a state-wide, holistic housing model that is sturdy enough to provide for adequate, affordable and quality housing, yet fluid enough to adapt to not only the changing needs and lifestyles of individuals, but also the different needs required by the growing urban and rural population,” he said in his speech during the opening of Sheda Property Expo 2015 last month. Elaborating further, he noted the state government in collaboration with Universiti Teknologi Mara (UiTM) has been conducting a year-long State Housing Development Study which is expected to be completed by the end of this year. Adenan observed the study is expected to guide the direction of housing plans in Sarawak until 2030 with an emphasis on demography, employment and income level.  On the need for more infrastructure, Adenan said several projects aimed at improving links and opening up areas previously inaccessible are already in the pipeline at various stages of approval and implementation. One of them, he said is the Pan Borneo Highway which will ease travel between Lundu and Lawas in five to six years’ time. Adenan added other infrastructure being constructed include the Sungai Bako Bridge and the upgrading of the Pantai Pandan-Kpg Belungei-Kpg Pugu road in Sematan which will increase economic activity and create local employment as well as a platform for small and medium enterprises (SMEs) to grow and trade. At the same time, he believed with more infrastructure, utilities and amenities being built, it will be able to raise the standards of living of the people in the rural areas. “Whilst these (rural) areas may not have the high population concentration that is linked to housing shortage, over the next few decades, these areas may very well be the next frontier to the property industry,” Adenan believed.  Likewise, Gambero outlined that Kuching, being selected as one of the cities in the 11th Malaysia Plan (11MP) for the competitive cities plans will become a catalystic growth to the property sector in the future. He also opined that economic corridors for instance the development of Sarawak Corridor of Renewable Energy (SCORE) is positive for the property sector in Sarawak. In the meantime, the government has offered several housing programmes to assist buyers to buy their first home.

Making Houses and Home Ownership Affordable  Adenan revealed the programme include the MyHome programme implemented by National Housing Department (JPN), 1Malaysia People’s Housing Programme (PR1MA) and the Youth Housing Scheme which was introduced during Budget 2015. Other schemes he said include Rumah Mesra Rakyat (RMR), Fishermen Housing Scheme and the Housing Assistance Programme. The federal government had in Budget 2015 disclosed that various programmes and projects will continue to be implemented to address the issue of home ownership at affordable prices. Among them is the construction of 80,000 residential units under the 1Malaysia People’s Housing Programme (PR1MA). In Sarawak, 3,000 units of PR1MA houses have been approved to be built and currently pending review by the relevant authorities at different stages of the process.

Moreover, the government has agreed to extend the 50 per cent stamp duty exemption on instruments of transfer and loan agreements and increase the purchase limit from RM400,000 to RM500,000.

The government disclosed that the exemption will be given until December 31, 2016.

On top of that, the government has also agreed to improve Skim Rumah Pertamaku – a housing scheme for first home ownership under the purview of Cagamas Bhd by raising the ceiling price to RM500,000 in line with the stamp duty exemption.

In addition, the age of borrowers to qualify for the scheme will be increased from 35 to 40 years to enable more people to own their first home and reduce the cost of buying a house.