PR1MA and the housing intervention

By Sherilyn Goh

The government has sought to make housing affordable for the average Malaysian through various programmes. But how effective have they been in closing the mismatch between supply and demand in the housing market? We zoom in on Prime Minister Najib Abdul Razak’s brainchild PR1MA, and ask if it will be the solution to the housing conundrum.

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As the government acknowledged that affordable housing was not only a lower-income challenge, but also increasingly concerns Malaysians at large, a range of affordable housing programmes was introduced over the years to help prospective home buyers own their first properties.

According to Khazanah Research Institute’s ‘Making Housing Affordable Report’, interventions in the housing market have mostly focused on improving affordability by leveraging on demand, either by allowing consumers to borrow more, or through subsidising the costs of houses.

Such policies include the Malaysia My First Home Scheme, which is intended to enable young adults earning RM5,000 per month or less to obtain 100% financing from banks to purchase their first home. The MyHome private affordable ownership housing scheme also provides a subsidy of up to RM30,000 per low-cost house for qualified first-time homebuyers.

On the supply side, the federal and state governments have mainly focused on the direct provision of affordable homes, either through public agencies or via partnerships with private developers.

For example, prior to 2012, public housing models were largely focused on providing housing in the low-cost sector, for the poor and hardcore poor, via the Projek Perumahan Rakyat.

It has, since 2012, moved in large ways to affordable housing targeted at medium-income households via the likes of Perumahan Rakyat 1Malaysia (PR1MA), Syarikat Perumahan Negara Bhd’s Rumah Mampu Milik and Rumah Mesra Rakyat, and Perumahan Penjawat Awam 1Malaysia which is reserved for civil servants.

At the state level there are Rumah Selangorku, Rumah Mampu Milik Wilayah Persekutuan under the purview of the Ministry of Federal Territories, Rumah Mampu Milik (RMM) Pulau Pinang, RMM Sarawak, and the Johor Housing Policy.

With governments at both federal and state levels shifting into the affordable housing space, it appears to have increased the range of eligibility much more than the years prior to 2012, following the aggravating housing affordability issue in recent years.

But have these programmes addressed the crux of the matter? And will they tackle the rising demand which is largely unmet in the affordable housing segment?

We zoom in on PR1MA, a brainchild of Prime Minister Najib Abdul Razak, and one of the most comprehensive affordable housing programmes seeking to address the affordability issue in the middle-income segment across all states in Malaysia.

The PR1MA promise

Conceived under the PR1MA Act 2012, the programme was mooted amid rising public concerns that houses are increasingly beyond the affordability levels of the middle-income group, who cannot afford high-priced houses, and yet are not eligible for the existing low-cost public housing programmes.

The affordable housing programme is managed by the government-owned company PR1MA Corp, which is under the purview of the Prime Minister’s Office.  

PR1MA Corp is mandated to build 500,000 units of affordable housing by 2018, as outlined in Budget 2013. A total of 240,000 houses are due by end-2015, as an annual 80,000 units were mandated in the three previous federal budgets.

A total of 1.05 million registrants have registered with PR1MA as of September 2015, clearly outweighing the projected supply of these houses.

The group which qualifies for PR1MA comprises households whose income falls between RM2,500 and RM10,000 a month.

The houses are correspondingly priced between RM100,000 to RM400,000, which is said to be about 20% below market price.

The programme also provides a buyback option within the 10-year moratorium period, distinguishing it from other affordable housing schemes whereby PR1MA buys back the unit at a price set under a formula.

Under PR1MA’s affordable housing scheme, eligible applicants may apply for a 110% loan from the agency’s panel banks. The additional 10% is to assist the homebuyer in paying additional fees such as legal fees and insurance.

While the effectiveness and sustainability of PR1MA have to be assessed over the longer term, questions have been asked about its implementation and delivery.

Is 80,000 houses a year realistic?

While a total of 240,000 units are due by 2015, as mandated under the three previous federal budgets from 2013 to 2015, it means that PR1MA has to build 80,000 houses every year.  

PR1MA has not revealed the figures for completed figures to date and declined to provide the answer to a question posed by KINIBIZ at a press conference on Oct 13, 2015.

Instead, PR1MA chief executive officer Abdul Mutalib Alias merely said that he is confident of securing approval for 240,000 units of PR1MA’s affordable housing as mandated in the three previous federal budgets by the end of the year.

According to Abdul Mutalib, as at year-to-date on Oct 13, a total of 199,172 units have secured approvals nationwide, and are under various stages of project delivery, with 25% of them being landed properties. Of the 199,172 units approved, a total of 65,000 units are under construction.

The balloting process is open to eligible applicants as soon as the project secures a development order, with the date of completion expected to be within two to three years from the balloting date. Some 27 out of 171 PR1MA projects are expected to be balloted by end-2015.

When asked if the mandate for building 80,000 houses a year is realistic, a source who declined to be named said: “That is actually higher than industrial average. They’ve been given the mandate to do so, but maybe without the kind of resources such as land to develop the houses.

“So they do run into these implementation challenges which would of course impact on the delivery of PR1MA housing to the right target groups,” explained the source.

In the recently announced Budget 2016, PR1MA was allocated RM1.6 billion to build a further 175,000 units of affordable homes in 2016.

Are PR1MA houses really affordable?

Institut Rakyat’s Housing Affordability Survey 2014 found PR1MA homes, which are priced from RM100,000 to RM400,000 for households with a monthly income between RM2,500 and RM10,000, to be overpriced by at least 11%.

The think-tank premised its deduction upon the affordability index, an objective benchmark to measure housing affordability by comparing property prices against the annual household income. Property priced at more than three times of the price-income multiple will be considered unaffordable.

“If we apply our housing affordability criteria of being within three times the annual income to PR1MA homes we find that a household earning RM2,500 a month should be paying RM90,000 and under for an affordable home (instead of RM100,000), while those earning RM10,000 a month should be paying RM360,000 (instead of RM400,000).

“We consistently find with PR1MA that the pricing has been 11% over that benchmark,” said Institut Rakyat’s executive director Yin Shao Loong.

Furthermore, with a national median annual household income of RM55,020, an affordability ratio of three means that half of the Malaysian population can only afford to buy a house that is under RM165,000, a segment which is already in short supply.

“The second problem with PR1MA is that it’s not geared entirely for first-time buyers. It is also open to people who already own a home, and effectively have an asset. And because they have an asset, they probably have an easier time securing access to credit.

“Due to these kinds of situation and coupled with the restriction in access to credit imposed by Bank Negara, you may find that you will get very few first-time homebuyers taking advantage of PR1MA. You are likely to find more people who already have an existing property and can get access to credit, ending up buying a second home via PR1MA,” he explained.

Charging the extreme limits of what the average household can afford, he said, is going to defeat the principle of providing affordable housing in the first place.

However, some opined that a monitoring framework and a list of criteria need to be put in place before making judgments about the success of the programme, which have only come into place since 2013.

Lack of accountability may undermine PR1MA home buyers

PR1MA has also received criticisms over its perceived lack of accountability. The National House Buyers Association (HBA) said PR1MA, which comes under the purview of the Prime Minister’s Office should be under the Housing Ministry.

“Why is it not under the Housing Ministry which has the appropriate experience? Instead, it is a unit of the Prime Minister’s Department operating in relative obscurity from public scrutiny and has high-level protection for its affirmative action policies,” said Chang.

The HBA secretary-general also questioned the lack of legislative controls on PR1MA that may be detrimental to homebuyers.

“PR1MA is not under Housing Development (Control & Licencing) Act (HDA). Therefore, PR1MA developers need not be licenced (to build) and don’t require advertisement and sales permits.

“Buyers who buy into PR1MA projects will not have the protections under the HDA legislation. Thus, the ‘speedy, cheap and effective’ Housing Tribunal will not be available for aggrieved and ‘short changed’ buyers,” said Chang.

He also wondered why PR1MA is not under the current legislation that regulates housing, for example the HDA 1966 and its regulations.

“Why shouldn’t there be safeguards like the imposition of mandatory housing development (project) account? Why shouldn’t the mandatory statutory sale and purchase agreement (SPA) in schedules ‘G’, ‘H’, ‘I’ and ‘J’ be used? PR1MA is not following the regulated SPA,” asked Chang.

Under the HDA 1996, the forms of SPA for all purchases direct from housing developers must use the Schedule G for purchases of houses, or the Schedule H (also known as the strata title) for the purchases of condominiums and apartment.

The forms of SPA for the built-then-sell model above are prescribed under schedule I and schedule J of the Housing Development Regulations 1989. Except for the payment mode, all terms and conditions in schedule I are similar to schedule G, and schedule J are similar to schedule H.

HBA also believes that all land allocated to PR1MA should be used to build affordable housing and not used in partnerships with private developers.

“From what we understand, only 40% of the land is being used for affordable units, with the balance used for lifestyle properties and to build commercial and high-end properties,” said Chang.

How it goes about solving the housing dilemma ultimately reflects on the commitment of the government to providing housing for 50% of the population who does not own a home. Is churning out thousands of homes within a subsidised and lower price bracket the magic pill to cure the homeless masses?

Instead of depending on one programme, or a range of affordable housing programmes with different income cut-offs, what are some of the other solutions to resolving the housing conundrum? We explore in the fourth part of the series.

Yesterday: How did we get into this housing mess?

Tomorrow: Solving the housing conundrum