Besides affordability, buyers also have to wrestle with prevalent high mortgage rejection rates
By FARA AISYAH / Pic By AFIF ABD HALIM
The increasing number of unsold properties, which has been attributed to a mismatch in supply and demand, is also a result of a mismatch in locations for affordable housing.
Laurelcap Sdn Bhd property valuer Kit Au Yong said while Bank Negara Malaysia’s (BNM) recent report highlighted a number of issues, including difficulties in securing loans among buyers, the locations would still be the deciding factor for any prospective house owner.
“There is a mismatch in the location of demand as well as the supply of affordable houses. You cannot build affordable housings in areas too far such as Ijok, because it will also be costly for the people to travel to work,” Kit told The Malaysian Reserve (TMR).
He said developers pay higher land premiums in better locations with greater connectivity and infrastructure, which is restraining them to build and sell properties at affordable prices.
As a result, many developers are building affordable housings in areas which are too far away from the city centre.
Apart from the location issue, Knight Frank Malaysia MD Sarkunan Subramaniam said another challenge hindering developers to build affordable homes is the current escalating construction cost which has pushed prices up.
As affordability becomes a bigger issue, buyers also have to eventually wrestle with the prevalent high mortgage rejection rates.
“The BNM report shows the maximum affordable house price in Malaysia is estimated to be RM282,000. However, developers are unable to provide a decent housing within that price range because of the construction cost.
“Even if they do build a house according to that price range, people will not buy it because they want a ‘wonderful’ house to live in. We cannot expect developers to sell houses that are not marketable,” Sarkunan told TMR.
According to BNM’s recent Economic and Financial Developments in the Malaysian Economy in the Fourth Quarter of 2017 (4Q17), the growing number of unsold residential units in Malaysia is largely due to housing unaffordability caused by a mismatch in supply and demand, as well as the nation’s overall slower income growth.
The report stated that the level of total unsold residential properties — including overhang and under construction units — stands at a decade- high of 146,4977 units as at 2Q17, an increase from 130,690 units as at 1Q17. In 2Q17, almost 82% of unsold units were priced above RM250,000.
“On the supply side, structural and cyclical factors in the housing market in Malaysia have resulted in a failure of the
market to provide an adequate supply of affordable housing for the masses. On the demand side, growth in household income has not kept up with the rise in house prices.
“Together with a low state of financial literacy among a majority of Malaysian households, and a cultural preference towards home-ownership instead of renting, these have contributed to the high demand for house purchases,” the central bank said.
While the country works towards increasing the supply of affordable housing for the masses, BNM plans to improve the rental market by strengthening the legal framework.
The formulation of the Residential Tenancy Act was announced in the Budget 2018, which would provide legal safeguards for both landlords and tenants, encouraging both demand and supply for rental housing in Malaysia.
“The next step would be to establish a Tenancy Tribunal, which offers an inexpensive option to resolve disputes between landlord and tenant,” the central bank said.
While lauding BNM’s new approach, Kit also voiced his concern regarding the management of these rental homes.
“My concern is, if the rental housing is a high-density development, who will pay for the maintenance fees? It will be a headache for the property manager.
“These people are renting because they do not have enough money to buy the unit, will they have enough to pay for the property maintenance fees?” Kit said.
He said there is a need of more clearer and stricter guidelines for the execution part as a badly maintained property will lose its value over time and lead to other issues in the property market.
Sarkunan quoted Australia’s negative gearing approach as a good example to be implemented in the rental market.
Historically, Australian tax-payers have been allowed to negatively gear their investment properties, in the strict sense of investing in property at an initial loss.
“For example, if I buy a property in Shah Alam and I have to pay RM6,500 per month but I can only rent it for RM1,000, the remaining RM5,500 can be taken from my income tax. In negative gearing, people will be able to claim the loss from their income tax,” Sarkunan added.
The central bank report also acknowledged that efforts to reduce the costs of housing are crucial to lowering house prices towards a more affordable level.
BNM said there are potential areas for cost reduction in affordable housing projects, namely adopting more advanced construction methods, pooling together resources between ministries and agencies under a single entity, and reducing compliance cost for affordable housing projects.
Among the methods to reduce compliance cost include lower project application fees, accelerate approval process and provide density bonus for affordable housing projects.