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Early signs of recovery for property market in 2019

Despite the market slowdown in 2018 for the property segment, Napic sees that sector to bounce back in 2019 based on the slight growth in volume and transaction in 2018 according to Napic deputy director property market division Norhisham Shafie.

“Judging from the marginal increase in volume and transaction in 2018, the property market is expected to stablise in 2019,” he said during the Big Data Analytics conference hosted by the real estate and housing developers’ association (REHDA).

The property sector recorded 313,710 transactions worth RM140.33bil in 2018 and increase by 0.6% in volume and 0.3% in value compared to 2017.

Residential property continued to support the overall property sector with 62.9% market share, followed by agriculture property with 21.5% share.

He also said that major infrastructure projects are expected to be the catalyst for development growth in the long run through the status of the projects that are under review commercial property will remain the supporting sector in generating business activity and pull-factor for investments.

The centre recorded overhang units of 51,625 nationwide last year with residential being one of the biggest with 32,213 units or RM19.86bil followed by serviced apartments with 11,371 units or RM9.1bil, while overhang in retail is at RM4.08bil while the rest is made up SOHO 1,343 units or RM669.2mil and industrial at 1,183 units or RM1.9bil.

To tackle the issue NAPIC depute director property market division Norhisham Shafie said it needs to be thoroughly handled and a holistic measure needs to be in place.

He presented during the Big Data Analytics for Real Estate and Property Development hosted by real estate and housing developers’ association (REHDA).

The conference brings together today’s prominent and experienced leaders to share insightful and inspirational presentations, forward thinking discussions and networking opportunities connecting both creative marketers and data practitioners alike.

Source: Star Property

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MAINTENANCE CHARGES FOR STRATIFIED MIXED DEVELOPMENT PROJECTS

The question of whether a uniform rate should be used or not in a mixed development project  during the Joint Management Body (JMB) period has been an ongoing debate. Strata Management Act 2013 (SMA) Sec 60 (3b) provides for different rates of maintenance charges and sinking fund contributions after titles are issued and the Management Corporation (MC) is formed but during the JMB period, it is not written.

The amount of charges payable is in proportion to the allocated share unit of each parcel (SMA Sec 12 (3), 25(3). If your unit is larger, you would need to pay more, but you should have more voting power by poll. It depends on the budget too.

SMA Sec 19(1)(b) requires the annual budget to be considered at the first AGM of the JMB and to determine the amount of charges and contributions payable (Sec 19(1)(c)).

Annual budget       X Share units of parcel = Annual charges payable
Total shares unit

Although there are no specific provisions in the Act, it has been allowed at the Annual General Meeting (AGM) to propose resolutions for different rates to be passed as in the case of Muhamad Nazri Bin Muhamad V JMB Menara Rajawali and Denflow Sdn Bhd in 2018.

At the AGM held in 2016, mandate was given by a unanimous resolution to the JMB to fix different rates of charges: Residential and retail shop not exceeding RM3.26 per share and car park not exceeding RM1.68 per share. Subsequently at the third JMB meeting, the rate was imposed at RM2.80 per share for residential/retail units and RM1.68 per share for the car park.

The High Court held that the SMA does not prevent the JMB from fixing different rates of charges for different categories of units so long as they are approved at the AGM. It was valid and legal for the JMB to fix different rates of charges for the residential/retail units and car park units as that was within the mandate imposed by the AGM.

After reading the whole case, I think it is acceptable in this situation as the residential and retail units have the same rate which is not high and well within the general market rate. Furthermore, it was agreed to by all in the unanimous vote and the facts are reasonable.

However, it is not uncommon in a mixed development to have a corporation owning a whole component or building and have majority votes. Individual owners would be easily outvoted and if adopted rates are not fair, aggrieved owners would be caught.

I am one of the affected owners in a scheme in Kuala Lumpur paying a rate that is so much higher than the norm for my office unit. At the AGM, we were outvoted by two corporations which then imposed very high rates, through the JMB where they have majority seats, for categories under individual parcel owners. We are in still in mediation with the JMB to lower our rates.

Let’s look at the rationale behind the use of different rates. After the MC is formed, they can create one or more subsidiary management corporations (SMC) to represent the interests of different category parcel owners (SMA Sec 63 to 65).

The common property and facilities used by all parcel owners would be managed by MC and its SMC would manage the limited common property (LCP) meant exclusively for different parcel owners. Different rates of charges and contributions depending on the facilities available at each category of building will be under the authority of each SMC.

A point to note is that the frequency of usage, general maintenance of common areas, whole floor and accessory parcels are incorporated into weightage factors before allocated share units for each parcel are established by a licensed surveyor appointed by the developer. (SMA 2013, First Schedule, Sec 8).

There are the arguments stating that this formula cannot fit all mixed schemes as it does not take into account factors specific to each project. However, some say that it is all encompassing.

In addition to the Rajawali case, proponents have used SMA Sec 32 (3b) as the statutory provision that allows JMB to grant exclusive use of certain common property to parcel owners of a component or building and hence, the need to pay more than others.

This section provides for JMB to make additional By-Laws or make amendments to such additional By-Laws concerning details of any common property of which the use is restricted. I think “Use is restricted” would be more appropriate to mean restricting use of said facilities to 10 pm or that the function hall can only be used for certain activities.

They have also contended that SMA Third Schedule reg 4, which allows a proprietor to sign a written agreement with the MC for exclusive use of part of the common property for a defined period subject to terms and conditions, as creating LCP.  There are stringent requirements to be fulfilled before SMC and LCP can be created, therefore it should not be confused with reg 4.

This procedure requires the boundaries of LCP to be clearly defined and  marked on a special strata plan. Together with comprehensive resolution and poll results from the general meeting of MC,  these are submitted to the Land Title Office for approval (Strata Titles Act Sec 17a).

The passing of resolution during AGM to change the contribution towards the maintenance charges for different categories during JMB period can cause a riot if rates are deemed unfair. If different rates are allowed, then JMB should be allowed to form sub JMB. The plan can be marked before titles are issued. There will be more on SMC and the substantial impact of allowing sub JMB in part two of this article.

Although dissatisfied parties can take their cases to the Commissioners of Building, courts or the Strata Management Tribunal, the latter two routes can be lengthy and expensive.

Before exhausting all avenues and firing bullets, aggrieved parties can seek the assistance of relevant authorities to mediate for an amicable solution. Sometimes, we need to go the “budi bicara” way.

About the contributor

Mary Lau held senior positions in consultancy and was appointed court assessor for compulsory acquisition and compensation disputes. She did her property degree in England and is a licensed valuer with the Board of Valuers in Malaysia.

 

Source: Prop. Wall

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Better to rent or buy? You decide

Google “Buy vs Rent” and you’ll get hundreds of search results. So, which is better? Both have its strengths.

However, if you are living in Malaysia and are a Malaysian, perhaps the answer is slightly clearer, after you consider factors such as age, and whether you’re a working professional or retiree.

Why it’s better to rent

1. Short-term basis. If you’ve move to a new place because of work and wish to only stay for less than 12 months, it’s better to rent. That’s because viewing, comparing and negotiating successfully for a property to buy takes months, followed by the usual process of applying for a loan and going through the land office. Later when you sell, you’ll have to go through the same processes.

Source: https://www.macrobusiness.com.au/2017/01/2017-demographia-housing-affordability-survey/

2. Mortgage slave markets. In some property markets, prices are already very high. Let’s look at below-median household incomes versus the median home prices of the world.

In some countries, buyers must fork out 70% of their monthly salary for a mortgage. For these markets, it’s cheaper to rent.

In Malaysia, if you have to fork out 70% of your salary ONLY for property, it’s unlikely you will get your loan application approved.

3. If there are better investment alternatives. Some people are extremely good with alternative investments. The stock market for instance, where they buy and sell for almost instant profit by studying charts.

There are also those who specialise in commodities like gold and silver, and know the best time to buy and sell.

These people should not tie their money up in property – rather let their money multiply faster elsewhere.

Do take note that cryptocurrency has a much higher risk and is not considered an investment in most countries.

4. Dislike for properties. Many believe property is not as important as cold, hard cash. Truth is, property is also an asset and can also be turned into money.

The downside? It will take a little more time to achieve this.

 

 

Why it’s best to buy?

1. Property allows us to leverage. Imagine buying a property of RM250,000. We only need a 10% downpayment while the rest is through a bank loan.

In other types of investments, returns are based on how much we invest. For property, the price increase is based on property prices and not how much we invest.

In fact, it may even sound like a scam if someone said you’ll receive double-digit returns every year.

Source: National Property Information Centre (NAPIC).

2. Exciting return on investment (ROI). We buy a property of RM250,000 and pay RM25,000 as downpayment. Let’s assume the price of the property does not increase much, perhaps just 3% per year for the next five years.

This is RM250,000 x 3% x 5 consecutive years = RM289,819 at the end of the five years.

This is RM39,819 divided by RM25,000 (downpayment) = 159%. Divided into five years = 31% returns per year.

Sounds crazy but if we placed the same amount into a fixed deposit account, that will be RM25,000 x 4% x 5 consecutive years = RM30,416.

This is a total of RM5,416 after five years. Sad but true. See the chart for the average increase in property prices. (Note: Historical data does not mean the same for the future)

3. Property is a NEED. So buy one that can double up as an investment. A home is not a car. You can choose to take public transport or even pester a colleague for a lift to work every day. However, you cannot sleep under a bridge or stay at a colleague’s home forever.

This is why there will always be demand, and supply will just have to meet demand.

Where price is concerned, let’s understand that MAMEE has been sold at 20 sen for decades. However, the packet size is now many times smaller than previously.

The price of a home may continue to be affordable but the size will become smaller, or developers will build further away.

4. We are Malaysians! Let’s understand that in some countries, the median age is already pretty “high”. So will you buy a new property if you are already 60? The answer is usually no.

However, for Malaysians, we must note that the median age is still 29. So demand will continue to be very strong and if we look at supermarkets, the products with the most choices today are baby products.

5. Property investment is easy. View a unit. Then view a few more. Drive around the area. Are there amenities you like? Look at the developer’s track record. Have they been around for over 20 years?

Compare the prices of equivalent units in nearby neighborhoods and even cities. We could even look at transacted prices of the properties in brickz.my.

This is unlike many other kinds of investments where the winners are usually just the best in their field or the richest. With property, it’s possible to start with just a right one and move along to the next one.

6. Renting is best when we retire. A prominent individual in real estate once said everyone should aim to have three properties when they retire.

One for own-stay, one for rental income and another they can sell and use the proceeds any which way they like.

Well, why not sell all three and use the proceeds any which way they like? If you choose to travel a lot, renting a place is best.

There are no right or wrong answers.

But truth is, it’s a very good time to rent. There are many home owners who are over-stretched financially and are willing to rent their homes at below market rates just to cover some of their mortgage payments.

This is why some high-rise units in Kuala Lumpur worth RM800,000 may only be rented out at RM2,500 per month today.

However, the question is, how long will this last? Secondly, is it not then the best time to enter the property market when developers are also more willing to have lower profit margins?

 

Source: Free Malaysia Today

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Measures to boost the property market

It’s not easy for the government and other stakeholders when it comes to the current mismatch in the property market.

The people want to buy homes but they want it to be affordable and in a good location and at least have the kind of features they want.

The current unsold units point to a mismatch in demand versus supply which the government intends to correct by building 100,000 affordable units in 2019.

There are also calls to relax lending rules for some potential buyers so they can get the loans they need.

We should also note that the issue of banks willing to lend and borrowers qualifying for a loan are two different things altogether too.

As for the measures to boost the property market, here’s a roundup.

According to an article in the NST, Malaysia’s economic growth this year is expected to be slower compared to the last two years with a projected growth of 4.9% in 2018, 4.7% this year and 4.6% next year.

Based on the latest statistics available, the number of unsold residential properties rose 48.35% (30,115) from 20,304 units year-on-year while the total value increased 56.44% from RM12.49 billion.

The 2019 Budget introduced some measures to encourage residential property market growth.

Some of the measures are:
• Stamp duty exemption on the first RM300,000 on the sale and purchase agreement for first-time buyers priced RM500,000 and below.
• Six-month stamp duty exemption for first-time buyers for units between RM300,000-RM1 million.
• Peer-to-peer crowdfunding initiative to provide buyers an alternative source of funding.
• Building of affordable homes for the B40 group.
• Help from Bank Negara Malaysia for first-time buyers with an income of less than RM2,300 for homes priced below RM150,000 with an 3.5% interest.
• RM25 million by Cagamas to provide mortgage guarantees for first-time home buyers with incomes of less than RM5,000.

Boosting the property market is needed. Rent-to-own schemes will help those needing a home but lacking the funds for a downpayment. Secondary markets should also be included.

However, any move that makes the property market become more speculative, should be avoided at all costs.

Buyers who really do not qualify should not get the loans they applied for, period. Properties must be built in the areas and with the specs that buyers need.

The numerous unsold units in the market have revealed that many were built with the intention of achieving “quantity” alone.

Hopefully, when we look back at this situation in 2020, the 100,000 units would have sold out and not added to the number of existing unsold units in the market.

Source: Free Malaysia Today

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Is using EPF contributions a solution to owning a home?

Employees’ Provident Fund (EPF) money is best left for our retirement. But is it safe? Yes, unless Malaysia encounters some unforeseen circumstances where even the EPF has to be disbanded. Otherwise, it is safer left in our EPF account rather than in any bank, even if it’s the largest bank in the world.

Then, the second question, “You think EPF returns are better than outside?” Briefly, it should be. For the risks versus returns assessment, the EPF carries a rating of good, if not excellent and definitely not bad.

However, the following is an interesting proposition.

According to an article in FreeMalaysiaToday.com, deputy president of the Malaysian Institute of Professional Real Estate Agents and Consultants, See Kok Loong said that the government’s one million homes in 10 years is not a solution for the B40 and M40 groups.

See said that B40 and M40 groups were unable to own homes due to their low real residual income.

He cited a study by Khazanah Research Institute which showed that real residual income for those earning a household income of RM2,000 and below per month was only RM76.

He said, “How can you pay instalments with RM76 per month? No bank would want to give you a loan.”

He proposed that EPF members be allowed to draw from their monthly contributions to pay for monthly instalments. This allows them to own a property and have higher real residual income without having to pay rental. He gave examples of some calculations.

“The B40 median household income is RM3,000 per month, so their monthly contribution to EPF is RM720. With the RM720 at an interest rate of 4.4% and a tenure of 25 years, the member is eligible for an RM135,000 loan.”

“For the M40, the median income is RM6,275 per month. Their contribution is RM1,443 per month and with an interest rate of 4.4% and tenure of 25 years, they will be eligible for a loan of RM270,000.”

Actually, it would be good to know a little about the kind of property an EPF member can buy for RM135,000 and RM270,000.

If the property options are really good – features, size and location – using EPF contributions should be seriously considered. The reason is because a piece of good property will always be a good hedge against inflation.

Usually, capital appreciation will beat inflation, and the return on investment will be in the double digits too!

Whether to use our EPF money or not is a big decision to make. Perhaps more discussion, consultations and negotiations are needed before any decision is made.

Source: Free Malaysia Today

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BNM trims OPR to 3% on market headwinds

Bank Negara Malaysia (BNM) decided to cut the Overnight Policy Rate (OPR) by 25 basis points to 3% from 3.25% at its Monetary Policy Committee (MPC) today amid weak economic outlook.

This is the first adjustment since January 2018.

“The ceiling and floor rates of the corridor for the OPR are correspondingly reduced to 3.25% and 2.75% respectively,” the central bank said in a statement today.

BNM said latest developments in Malaysia point towards moderate economic activity in the first quarter of 2019.

“Looking ahead, slowing global demand conditions and subdued growth of key trading partners will continue to weigh on the external sector.”

The central bank noted that while domestic monetary and financial conditions remain supportive of economic growth, there are some signs of tightening of financial conditions.

“The adjustment to the OPR is therefore intended to preserve the degree of monetary accommodativeness. This is consistent with the monetary policy stance of supporting a steady growth path amid price stability. The MPC will continue to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation.”

 

Source: The Sun Daily

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Monetary Policy Statement

At its meeting today, the Monetary Policy Committee (MPC) of Bank Negara Malaysia decided to reduce the Overnight Policy Rate (OPR) to 3.00 percent. The ceiling and floor rates of the corridor for the OPR are correspondingly reduced to 3.25 percent and 2.75 percent respectively.

The global economy continues to expand moderately. While growth outcomes for several major economies were better than expected during the first quarter, underlying economic conditions continue to suggest moderation going forward. Considerable downside risks to global growth remain, stemming from unresolved trade tensions and prolonged country-specific weaknesses in the major economies, further dampening global trade and investment activities. Although the tightening in global financial conditions has eased somewhat, heightened policy uncertainties could lead to sharp financial market adjustments, further weighing on the overall outlook.

For Malaysia, latest developments point towards moderate economic activity in the first quarter of 2019. Looking ahead, slowing global demand conditions and subdued growth of key trading partners will continue to weigh on the external sector. Domestically, stable labour market conditions and capacity expansion in key sectors will continue to drive household and capital spending. The baseline projection is for the Malaysian economy to grow within the projected range of 4.3% – 4.8%. However, there are downside risks to growth from heightened uncertainties in the global and domestic environment, trade tensions and extended weakness in commodity-related sectors.

Headline inflation increased to 0.2% in March 2019 (February: -0.4%), due mainly to the less negative transport inflation at -3.0% (February: -6.8%). Underlying inflation, as measured by core inflation[1], remained stable at 1.6% in March 2019. In the immediate term, inflation is expected to remain low mainly due to policy measures. These include the price ceiling on domestic retail fuel prices until mid-2019 and the impact of the changes in consumption tax policy on headline inflation. For 2019 as a whole, average headline inflation is expected to be broadly stable compared to 2018. The trajectory of headline inflation will continue to be dependent on global oil prices. Underlying inflation is expected to remain stable, supported by the continued expansion in economic activity and in the absence of strong demand pressures.

The domestic financial markets have remained resilient, despite periods of volatility primarily due to global developments. While domestic monetary and financial conditions remain supportive of economic growth, there are some signs of tightening of financial conditions. The adjustment to the OPR is therefore intended to preserve the degree of monetary accommodativeness. This is consistent with the monetary policy stance of supporting a steady growth path amid price stability. The MPC will continue to monitor and assess the balance of risks surrounding the outlook for domestic growth and inflation.

Source: Bank Negara Malaysia

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PR1MA public housing may be dissolved

Perbadanan PR1MA Malaysia may be dissolved pending due diligence and a turnaround plan, its chairman Tan Sri Eddy Chen said.

He said on Thursday: “We found it very challenging because of the business model is numbers driven. It was given a big number to build and very little land to work on”.

PR1MA was established under the PR1MA Act 2012 to plan, develop, construct and maintain high-quality housing with lifestyle concepts for middle-income households in key urban centres.

Its objective was that the housing units would be priced between RM100,000 to RM400,000.

The housing units were to be built in key strategic urban areas nationwide, PR1MA was open to all Malaysians with a monthly household income between RM2,500 to RM15,000.

Source: The Star

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State to study Airbnb woes before legalising ops

HOW other cities worldwide tackle their Airbnb problems are being studied to see if the home-sharing business could be legalised or regulated in Penang.

The office of the Penang State Exco for Tourism Development, Arts, Culture and Heritage (Petach) is studying their policies to tackle the issue of residential home owners who rent out their units as if they were running a hotel or serviced apartment.

Its exco member Yeoh Soon Hin (pic) said the global home-sharing business was quite established in Penang now that when people buy a house or condominium unit, someone might approach them and offer to guide them to sign up with Airbnb and make money from their new property.

He told the assembly that Penang Global Tourism had met with Airbnb’s management team to discuss how to regulate the business.

“Airbnb told us that they are ready to cooperate and register Airbnb units in Penang with the local authority, but we have no laws or policies for this yet,” he said.

Yeoh said in San Francisco, Airbnb operators are limited to renting their homes to a maximum of 90 days a year.

“In Catalonia, Spain, Airbnb operators can be fined up to 30,000 Euros (RM140,000) and the unit owners fined up to 90,000 Euros (RM420,000) if there are complaints.

“In Singapore, the Urban Redevelopment Authority is proposing to limit Airbnb units to only allow up to six people each time to rent them and for only up to 90 days a year.

“For strata units, Singapore plans to allow it only if at least 80% of all unit owners in the building give consent.

“Japan enacted a law to allow home-sharing of units for only up to 180 days a year,” he said when replying a question from Daniel Gooi Zi Sen (PH-Pengkalan Kota).

Gooi said he was concerned because despite strong enforcement from Penang Island City Council since 2017 to stop residential property owners from using their units commercially, the Airbnb portal lists thousands of units in Penang.

“We cannot deny property owners from benefitting from their assets, but we also cannot let them continue to operate without paying their dues such as commercial assessment rates or the hotel fee,” he said.

Yeoh said Petach was studying how Airbnb operators are regulated while waiting for the federal government to draft laws on home-sharing.

“We raised the issue and were told that the Housing and Local Government Ministry and the Tourism, Arts and Culture Ministry are studying possible laws on this.”

Yeoh said the business was unfair to neighbours, the hotel industry and local authorities.

“They are paying assessments and utility rates for residential units but are using those units commercially while legal hotels that comply with all laws such as safety and traffic provisions pay much more.

“The peace and privacy of their neighbours are being intruded upon,” Yeoh said.

He said his team in Petach was also considering the possibility of recommending that Airbnb operators be charged double or triple the current residential assessment rates that they are paying now after they are legalised.

Source: The Star

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Valuation needed for new houses — experts

House buyers stand to benefit if primary market residential properties too, and not just secondary properties, are required to have a valuation done, say experts.

Noting that new houses are currently priced at the sole discretion of developers, they said an independent valuation will help ensure fairer prices.

They were commenting on the call for improved housing valuation methods by Khazanah Research Institute (KRI) in its report on the state of housing released last week.

The report said the sales comparison approach (where the last transacted price of a house determines the value of a new comparable house in an area) currently used should be complemented with the cost approach (where the price is equal to the cost to build an equivalent property).

“One of the weaknesses of the sales comparison approach is that the rapid escalation of house prices is sometimes the result of speculative activities,” it noted.

Michael Kong, president of the Association of Valuers, Property Managers, Estate Agents and Property Consultants in the Private Sector, said the report seems to assume that developers are pricing their properties based on valuations done.

“That is not true. Valuers are not involved in the developers’ pricing,” Kong told The Edge Financial Daily.
He said overpricing occurs when primary market properties are sold at high prices, as developers have the sole discretion in determining the prices.

A property sector analyst with an investment bank research house, who declined to be named, concurred with this view. She said the issue arises when the value of a unit of property at completion is lower than the initial price at its launch.

This, she said, is due to the fact that the valuation method adopted by property developers to price their products is inconsistent with how valuers appraise the same unit if it were to be sold on the secondary market.

“Malaysia has been fortunate as the House Price Index has been relatively stable and has been on an upward linear trajectory so far. So previously, homebuyers and investors who bought properties during its launching anticipated that they can at least sell the properties with 20% to 30% profit at completion. But the property market is soft now. It doesn’t work like that anymore,” said the analyst.

“This disparity of valuation method between the primary and the secondary market is the crux of the issue,” she added in a phone interview.

The analyst did not push for any particular valuation method to be adopted, but called for a standardised method that is endorsed by the government. This is so that the same valuation method is applied across the board.

“This issue should be addressed through regulatory measures by the government. It doesn’t matter which method (is used), as long as it is consistent and comprehensive,” she said.

The Valuation and Property Services Department (JPPH) has cautioned against adopting the cost approach for property valuation.

“The cost method is a last resort … because value is not equal to cost,” JPPH director Ahmad Zailan Azizuddin said last Friday at the launch of the National Property Information Centre’s (Napic) 2018 Property Market Report.

According to Kong, Napic data may not be the best representation of Malaysian house prices as rebates and discounts offered by developers are often not captured in sales and purchase agreements, which are the data recorded by Napic.

“This distorts official data on the property market,” he said.

Finance Minister Lim Guan Eng, also speaking at the launch of the Napic report, stressed the need for a reduction in the gap between property valuations made by the public and private sectors.

“I believe if there are clear SOPs (standard operating procedures), then the gap in property prices will not be so wide,” he said.

Referring to KRI’s recommendation, the minister said the argument for the adoption of the cost valuation method needs to be discussed among stakeholders before a final decision can be made.

Ahmad Zailan said the department routinely engages with surveyors and valuers in the private sector, and that while JPHH is concerned about the gap, it is “not too big.”

“As a government valued (method), we adhere to standards. We share the same standards and principles as the private sector, but with a difference in opinion,” he said.

Transparency needed on costs
While Ahmad Zailan described property valuation as “both an art and a science”, KRI is quick to point out the difficulty in assessing the true costs of properties as stakeholders, including developers, have been reluctant to elaborate on their costs.

Lee Heng Guie, executive director of the Socio-Economic Research Centre, said managing cost structures is often the competitive advantage of most developers, making it less likely that they would be willing to share such information.

But KRI chairman Dr Nungsari Ahmad Radhi said “the real issue” is price discovery, as the prices of a developer’s new products depend very much on the valuation of sub-sale units in the surrounding area.

“The [valuation] decision on one acre influences the next one … regardless of [development] cost. It becomes an auction,” Nungsari said during the launch of the KRI report.

This is the key reason the think tank has recommended that an independent valuer be appointed for house purchases, not only during the application of bank loans but also to derive the true values of houses.

According to Kong, the ease of obtaining bank facilities has also left developers unchecked.

“Bank Negara Malaysia used to require developers to conduct market studies before banks could approve financing for their developments. Now that is no longer a compulsory practice. But the instructions should come from (the) banks,” he said.

However, developers have often blamed high compliance costs for rising house prices, including the cost of building infrastructure for utility companies without being compensated.

Datuk Soam Heng Choon, president of the Real Estate and Housing Developers’ Association, referred to a case where a developer acquired a piece of land in Kuala Lumpur at a high cost.

When the plan was submitted to the city council, it was imposed with RM24 million development charges, which translated to around RM30 per plot ratio or over RM30 per sq ft, Soam said at the KRI report launch.

The KRI report, however, stated that limited data indicated both compliance and contribution costs are only a small fraction of total development costs, while costs caused by delays in development approvals have been addressed through improvements in the One-Stop Centre portal

“Data from the Construction Industry Development Board and Napic indicate that house prices in Malaysia have almost doubled since 2008 while construction costs — labour, material and machinery, and equipment — have increased only slightly in the same period,” the report said.

In fact, for affordable housing schemes, Housing and Local Government Minister Zuraida Kamaruddin said all the compliance costs have to be absorbed by the government agency responsible for the scheme. This includes the construction of utilities such as Telekom Malaysia Bhd communication infrastructure and Tenaga Nasional Bhd power stations.

“There were concerns that the agency might not have the money to absorb the costs on their own, but I have talked to some of the developers and I have suggested that they incur the costs first and collect them later from the government because the government will be the one collecting the bills.

“We will come up with a mechanism but whatever it is, we are trying to reduce the construction cost so that prices of houses will not be too high,” she told the media on Monday.

“The property developers should not include compliance expenses in the construction cost to the price of the house for affordable housing,” she added.

Government intervention a must for affordable housing
Zuraida said prices of affordable homes under the newly introduced National Affordable Housing Policy will be determined by taking into consideration the median income of a particular area, which could go as low as RM90,000 per unit and up to RM300,000.

“We are going to monitor the prices of houses according to the median income of the area. So that is one form of control. Therefore, they (property developers) cannot go more than what the affordability rate of the people in that area,” she said.

If the property developers do not follow the price guideline set by the ministry, Zuraida said those projects would not be approved.

“With the median price, they (property developers) will have no choice but to follow (the guideline). If they don’t accept the median price, then I won’t give them the job, simple as that,” she stressed.

When asked if this would interfere with the free market convention of demand and supply to determine the pricing, Zuraida said, “As far as the affordable homes are concerned, I don’t think it’s interference, because it is what we want to give to the people. But if [they’re] private [projects] then we are not concerned with how they price their properties.”

According to JPPH’s Ahmad Zailan, the cost valuation approach may in fact be most practical for affordable housing developments.

While he acknowledged that it is a challenge to secure the correct figures from parties that are currently not transparent with their costs, he believes that it is possible to succeed with firm government intervention.

“There needs to be a strong policy,” Ahmad Zailan said.
On the demand side, the finance minister has repeatedly called on banks to be more flexible in disbursing loans, even suggesting progressive interest rates on repayments for housing loans.

“If borrowers are facing [payment] pressures, they can move to progressive payment schemes to pay more in later years,” he said.

However, KRI highlighted that Malaysians’ high household debt of RM1.1 trillion or 88.4% of gross domestic product as at the end of 2016 largely comprises borrowings for house purchases. It also noted that the US sub-prime crisis showed that loans extended to people who cannot afford to pay for them are highly detrimental to the wider economy.

“Against the backdrop of high debt levels, rises in property prices that are not supported by fundamentals can be a potential source of risk to financial stability,” KRI said.

Source: Edge Property