Present guidelines do not exercise automatic release in areas that show poor demand from Bumis

By IZZAT RATNA / Pic By TMR File

THE stringent policy on the release mechanism for Bumiputera quota within housing projects needs to be reviewed as property developers struggle to achieve healthy margins, particularly in areas where demand for units in the segment is lower.

Industry players and experts have voiced their concerns about the present guidelines for the Bumi quota, which do not exercise automatic release mechanism in areas that show poor demand from Bumiputera buyers.

CBRE-WTW MD Foo Gee Jen (picture) said that not all states have a structured mechanism in terms of the process of releasing Bumiputera units, which has resulted in higher housing prices for consumers.

“When a developer buys a project with such high Bumiputera quota, obviously they have to load the pricing to the other side. In other words, cross subsidisation will occur which creates higher cost of financing.

“This sent iment has also impacted developers’ future developments because they are not able to proceed with new launches due to the large number of unsold Bumiputera stocks,” he told The Malaysian Reserve (TMR).

At present, developments in high-traffic areas outside the affordability range are the highest hit, due to the uphill number of vacant Bumiputera spaces.

The situation has forced developers to bleed out more due to the elevated holding expenditure, along with higher pass-on cost to consumers that would assist property companies to break even.

Foo said a clear mechanism is needed for an automatic release of the Bumiputera quota, depending on the sentiment of the market, to avoid further deterioration in developers’ profit margins and any imbalance in the market.

He added that on average, developers stand to lose between 10% and 15% for each of the unreleased units, and a 5% reduction in margin for the total development, depending on the project’s value.

“Developers’ margin of financing for holding cost would generally contribute to between 3% and 5% for large development projects.

“The longer you hold on to the unit, the higher the holding cost will be, which will not help the economy also because tax authority will have to defer their collection period.

“Imagine if you don’t release the unsold Bumiputera units. That means there is no cycle in the market and from an economic standpoint, there would be no buying and selling activity,” Foo said.

As such, Foo suggested that the government load for lower Bumiputera quota in the high-end segment and emphasises more on the lower-to-affordable segment, rather than standardising the quota across the board.

“To me, we have to work out the mechanism clearly. They should do the cross balance. I think the government should be more flexible for certain segments of the market, especially if the Bumiputera’s interest is low,” he said.

Real Estate and Housing Developers’ Association Malaysia chairman for Selangor branch, Zulkifly Garib, said the present guidelines on the release of Bumiputera units are relatively slow and should be expedited to relieve any burden experienced by developers.

“The quota is a social economic mechanism implemented by the government. However, the release mechanism should be faster,” he told TMR.

He added that currently the release mechanism has to go through a number of processes before the Bumiputera quota units can be discharged to others.

Additionally, Zulkifly said if the units are vacant for too long, it will also reduce the value significantly, and in turn will be transacted at a significantly lower price than the actual market price.

The Bumi Lot Quota Regulation was introduced as a means to increase the Bumi shares in real estate up to at least 30%, under the New Economic Policy. Since its inception in 1971, developers have been required to allocate at least 30% of all property units (residential or commercial).

According to the Malaysian law, state authorities are given full control over land matters and as such, Bumi quota regulations fall under the state government’s jurisdiction. As such, the quota could differ from state to state.