Pay­ing for chicken and eggs

The Star Malaysia - StarBiz - - Viewpoint - ALAN TONG Food for thought star­[email protected]­ Datuk Alan Tong has over 50 years of ex­pe­ri­ence in prop­erty de­vel­op­ment. He is also the group chair­man of Bukit Kiara Prop­er­ties. For feed­back, please email [email protected]­

IMAG­INE if you went to the mar­ket to buy eggs and were told there wasn’t enough.

If you want, you have to buy chick­ens for the farm­ers to raise them and later the farm­ers will charge you for the eggs laid by the chicken you bought. This hardly makes sense.

Is that fair? I can al­most hear you shout­ing NO!

Or imag­ine a city, where all the roads are pri­va­tised and full of cars. The pri­vate toll road op­er­a­tor tells car com­pa­nies not to sell cars any­more be­cause they can’t build new roads. If car com­pa­nies still want to sell cars, they have to build new roads on their own. How­ever, their cus­tomers will still have to pay toll to the op­er­a­tors.

If that hap­pens, car pur­chasers will pay twice. Once for the car price in­crease as they pay for the road con­struc­tion cost, an­other is the toll charge.

Is that fair? I can al­most hear you shout­ing NO!

Well, that’s what hap­pened in the prop­erty in­dus­try, right at your home though you may not be aware.

Cur­rently, prop­erty de­vel­op­ers need to con­struct util­ity in­fra­struc­ture when they build new projects. The util­ity com­pa­nies will then charge the res­i­dents via util­ity bills de­spite the fact that they did not build the in­fra­struc­ture.

Ac­cord­ing to Hous­ing and Lo­cal Gov­ern­ment Min­is­ter Zu­raida Ka­marud­din, the com­pli­ance costs for build­ing in­fra­struc­ture have added 20% to 25% to the de­vel­op­ers’ con­struc­tion cost.

Ad­di­tional costs will be passed on to home pur­chasers and as a re­sult, it leads to higher house prices.

To re­duce the com­pli­ance costs im­posed on de­vel­op­ers, the gov­ern­ment is propos­ing for util­ity com­pa­nies to build their re­spec­tive in­fra­struc­ture in af­ford­able hous­ing projects.

Ac­cord­ing to news ar­ti­cles, the pro­posal was ex­pected to be en­forced in 2019 once the Cab­i­net ap­proved the af­ford­able home pol­icy. This in­cludes Te­naga Na­sional Bhd for elec­tric­ity and other water and telecom­mu­ni­ca­tion com­pa­nies.

Zu­raida was quoted as say­ing that “prin­ci­pally, at the min­is­te­rial level, we have agreed that the util­ity in­fra­struc­ture build­ing and the cost of build­ing it will be handed over to util­ity com­pa­nies”.

“Af­ter all, pay­ments for the bills are col­lected by these com­pa­nies and not the de­vel- op­ers.”

This is a good move that will help in the gov­ern­ment’s mis­sion to re­duce house prices, es­pe­cially in the ef­forts of pro­vid­ing more af­ford­able homes. This is def­i­nitely a step in the right di­rec­tion for the ben­e­fit of the rakyat.

Pre­vi­ously, when util­ity com­pa­nies were owned and ran by the gov­ern­ment, the gov­ern­ment built the in­fra­struc­ture with a rea­son­able cap­i­tal con­tri­bu­tion from de­vel­op­ers.

How­ever, af­ter the pri­vati­sa­tion of these util­ity com­pa­nies, the in­fra­struc­ture costs have been trans­ferred to de­vel­op­ers while the util­ity com­pa­nies con­tinue to reap prof­its without in­vest­ing in the in­fra­struc­ture within hous­ing projects.

On the other hand, de­vel­op­ers are loaded with ad­di­tional costs even as they con­tinue to con­trib­ute new cus­tomers to the util­ity com­pa­nies.

As pri­va­tised en­ti­ties, these util­ity com­pa­nies place profit as a pri­or­ity ahead of pub­lic good. From ex­pe­ri­ence, they are not nec­es­sar­ily more ef­fi­cient as there is po­ten­tial for cor­rup­tion and com­pla­cency due to the na­ture of their mo­nop­o­lies.

Ac­cord­ing to a de­vel­oper whom I am fa­mil­iar with, their project re­ceived a gov­ern­ment watch­dog’s ad­vice on the com­pli­ance cost based on a cal­cu­la­tion us­ing a fair for­mula. How­ever, it was not agreed by the rel­e­vant util­ity com­pany which wanted to charge dou­ble in­stead.

It is un­for­tu­nate how such mo­nop­o­lies be­come so pow­er­ful and even ig­nore the ad­vice of the gov­ern­ment watch­dog. Home­own­ers will end up pay­ing more due to the higher con­tri­bu­tion for the in­fra­struc­ture.

Util­i­ties can be highly ef­fi­cient when they are op­er­ated by a clean gov­ern­ment. Once they are pri­va­tised, the fo­cus shifts from pub­lic ser­vice to profit. They prof­i­teer from end users and also de­vel­op­ers, who have no choice but to pass the costs to their cus­tomers.

In other words, the util­ity com­pa­nies are tax­ing the cus­tomers twice as in my two ex­am­ples at the be­gin­ning of this ar­ti­cle.

As high­lighted in my pre­vi­ous ar­ti­cle, ac­cord­ing to Trans­parency In­ter­na­tional Malaysia, cor­rup­tion had cost our coun­try about 4% of its gross do­mes­tic prod­uct value each year since 2013. Added to­gether, this amounts to a high fig­ure of some RM212.3bil since 2013. To­day, the rakyat is pay­ing for this, both ways.

It is time to re-look into all these and bring things back to or­der.

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