Property takeaways from New Dawn conference

Following a sustainable infrastructure and housing panel session at the ‘Malaysia: A New Dawn’ conference, insights were given as to what can be expected in terms of the widely anticipated Dasar Perumahan Negara 2.0 or the National Affordable Housing Policy (NAHP) 2.0.

The panellists present were Minister of Housing and Local Government Zuraida Kamaruddin and Minister of Works Baru Bian.

During the panel sessions, both ministers highlighted that the NAHP 2.0 included several changes and new initiatives that would set out to make affordable housing more readily available for our B40 and M40 and potentially restructure our current housing market for the better.

The main points discussed in the panel sessions were that the solution to affordable homes would not be a blanket solution for every area in the entire country, instead affordable homes would be classified in 3 tiers and will be dependent on the median house price transaction as well as the median income of a particular area; this would be those priced below RM150,000 per unit, RM150,000 to RM350,000 per unit and RM350,000 to RM500,000 per unit, depending on areas or state.

Additionally, the liveability of these affordable homes was also discussed, and it was highlighted that the minimum house sizes would be set at 850 with certain basic facilities.

“They (panel) are also cognisant that these accommodations tend to be poorly managed and maintained, resulting in poor occupancy and deterioration of the asset and leading to creation of ‘slums’.

“KPKT is also looking to better integrate the affordable housing components into normal developments to avoid ‘ slums’ formation in the future, which of course poses challenges for developers; clarity on this matter is required as not much further details were given.

“However, there are several proposals being considered including private developers paying a decent levy to KPKT in the absence of meeting this obligation. We hope to get more details on this once the NAHP 2.0 is out,” said Kenanga Research in a Recent property sector update report.

Changes to the developers

While the PH government has previously stated that they plan to roll out one million affordable homes over a 10-year period, this influx of homes is not expected to be in direct competition with our private sector.

According to Kenanga research, the panel indicated that the government will not be a major driver of this supply as they intend to drive the affordable homes agenda via mechanism which will not be too burdensome on government coffers.

“An example of this is government land joint ventures with private developers. KPKT was clear that these land JVs will be done on an open tender basis to ensure competitiveness. In fact, it was just reported that KPKT requires that all states submit a list of potential sites for affordable housing projects before the month-end, citing that states that fail to submit will not be entertained for affordable housing requests (Malaysian Reserve). It also mentioned that a size of at least 10 ac for each project is required for such affordable housing projects.

“Another example is using alternative financing like crowd financing to finance government housing for rental purposes and RTO schemes,” guided the research arm.

In the past, such JV’s were not the norm as many developers were deterred by low profit margins. To encourage private developer’s participation, Zuraida also commented during the panel that certain compliance costs currently borne by developers will be removed to reduce overall costs.

While a full list of compliance costs was not revealed during the session, it is understood that compliance costs such as utility agencies now having to construct their own amenities instead of developers and land premiums would be under review.

“This is only applicable for affordable housing projects. To recap, compliance costs tend to eat up 3 to 6ppt of developers’ margins. Additionally, SST will be exempted on building materials for these affordable homes and thus, better cost savings to the buyers.

“This means that there is less risk on developers’ current margin trajectory, which has already suffered compression due to lower economies of scale, discount or rebates given to clear inventories and higher A&P activities,” said the research arm.

It was also indicated there will be more stringent enforcements on developers’ responsibilities and deliverables, including policies, which address developers holding on to unsold units for extended periods.

“If so, we opine this will improve the quality of houses as developers will have to ensure that these houses are both saleable and liveable, which will essentially weed out the weaker developers,” added the research arm.

“Considering our population size of 32.0 million, we have always opined that there are just far too many developers in Malaysia, both publicly listed and private, as the barrier of entry to this business is considered low.

“We note that many non-landrelated driven sectors have delved into property development resulting in an overcrowding of developers.”

Addressing the issue of financing

While it is easy to point fingers at developers for high prices, one of the main issues that still stands in our housing issue is the difficulty for home buyers to obtain sufficient financing for their purchases.

In the past banks have been seen to be extremely conservative in their home loans approvals due to fears of our rising household debt levels, however in the panel Zuraida guided that Bank Negara Malaysia (BNM) and a few major banks will be now considering a more accommodative approach towards first-time home buyers.

This may involve extension of the maximum loan tenures, introduction of flex loans that allow repayment to better correspond with the growth of the borrower’s income, and a potential 100 per cent financing for households with incomes below RM2,200 per month.

Should these measures come to fruition, Kenanga Research recons that it will allow the developers a breather in terms of achieving sales targets.

However, that being said, the research arm cautioned that banking loans would need to be monitored closely as the current level of residential and nonresidential property loans are at an all-time high at 46 per cent of the total banking system term loans.

“If not managed properly, a significant drop in overall property prices, particularly residential, may weaken the banking asset quality which may consequently result in a ‘domino’ effect across the stock market, property market and the economy,” the analyst warned.

Local efforts

While the NAHP 2.0 is a country wide initiative, locally our own state government have taken their own steps in helping our own citizens secure their first homes.

According to Wong, the state government has recently issued a circularonthe‘SrPertiwiAffordable Housing Scheme’ whereby selling prices are capped at RM270,000 for landed and intermediate terrace houses in the scheme and RM295,000 for landed corner terrace houses and apartments with a minimum floor area of 900 sqft and 3 bedrooms and baths.

The scheme is targeted towards the M40 households within Sarawak that bring in a monthly household income between RM4,000 and RM10,000 per month.

“The margin for this type of affordable housing scheme is substantially lower than conventional schemes but with the SST savings of 2 to 3 per cent on building costs, more private developers might be swayed to participate. We hope that this is the case as it is estimated that 120,000 units of this type of housing is needed in major towns and cities across Sarawak,” Wong said.

So far, there are currently 32 local developers who have shown interest in building the 40,000 slated units of the Sri Pertiwi affordable scheme.