The higher the cost of compliance, the higher the cost of development and this leads to a spike in house prices
by S BIRRUNTHA / Pic by HUSSEIN SHAHARUDDIN
REHDA Institute has released a report that puts forward practical and impactful solutions to reduce cost and to make housing affordable.
The report, called “Housing Forward — Understanding Costs and Sustainable Prices”, was conducted to give stakeholders clarity on the key issues facing the industry, particularly the impact of compliance costs.
Rehda Institute chairman Datuk Jeffrey Ng Tiong Lip said compliance costs refer to expenses incurred to comply with various policies, guidelines, standards and regulations.
He added that it covers capitalbased costs such as land conversion premiums, contribution charges, levies, fees and other financial contributions including infrastructure services funds, utility development charges, sewerage capital contributions as well as contributions for road infrastructure upgrades.
He noted that the delay in getting approval before, during and post-development also resulted in increased risks and holding costs, including for the release of unsold Bumiputera quotas.
“All of this will form part of the total development cost of the project and will translate into house prices.
“The higher the cost of compliance, the higher the cost of development which will eventually lead to a spike in house prices and in turn push the people’s economy,” he said.
He added that in the current situation, the cost of land ownership and other development such as building materials, labour, professionals and operations would continue to increase due to economic, market and inflationary factors.
He emphasised that it also would put pressure on the final selling price as construction costs make up to 60% of the gross development value (GDV).
He also added that there was almost no room for this cost to be reduced as it was necessary to follow existing construction standards, quality and current material prices.
“Therefore, there is an urgent need to ensure compliance costs are controlled to maintain house prices,” he said.
Commenting further, Ng noted that the land for the new township construction project is currently not fully usable.
He said clearly, it is because almost 60% of the land had to be used for the development of public facilities and other related areas such as utility sites, roads, sewers and recreational areas.
“This has resulted in property developers having only 40% of the land to use for the sale property development,” he said.
Ng cited an example that a 20% increase in the development of 40.5ha of land would bring an additional loss of 8.1ha of saleable land.
“Previously, the land use ratio was around 40% for facilities and 60% for property development sales.
“However, every year the ratio is increasing causing developers to face reduced supply and loss of additional GDV,” he said.
Meanwhile, Ng also added that Rehda Institute together with the Real Estate and Housing Developers Association of Malaysia would submit the latest report to the government, including the Ministry of Housing and Local Government (KPKT), agencies, state governments and local authorities.
He said, all parties need to hold immediate discussions to enable affordable housing developments in Malaysia as well as to provide space for people to own houses.
He said it was an urgent need because without absolute control and solution, the issue would continue to linger which would ultimately burden the people.
Previously, there were multiple calls from the property industry to reduce compliance cost and capital contributions in housing developments.
After Pakatan Harapan (PH) came to power in 2018, KPKT at the time (under PH) was reported as saying that the government was mulling a reduction in compliance costs for affordable housing development.
However, with the change of government in 2020, the talks of reducing compliance cost has been pushed behind although there are still ongoing efforts and commitments from the ruling party to provide affordable housing to bottom 40% income group and urban poor group.