PR1MA and the affordable housing battle

By Khairie Hisyam

The government has put forth PR1MA as the answer to the affordable housing issue plaguing a big chunk of the Malaysian population. But is PR1MA sufficient to address the problem? KiniBiz digs deeper to see if PR1MA needs reinforcements.

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While plenty of questions surround the PR1MA initiative and its execution, it is still early days for the programme, having only been launched in 2011.

Despite the criticism over how the government is implementing the initiative, there is still some way to go before PR1MA actual effectiveness in meeting the demand for affordable houses among middle-income Malaysians becomes apparent.

Looking beyond PR1MA, however, should more be done to address housing affordability concerns?

A national register for housing

While PR1MA housing is a good concept, there is plenty of room to do more in tackling the issue at large, said Mani Usilappan, principal of Mani Usilappan Chartered Surveyors.

For one, the country needs a national register of property owners, said Mani. “Do we know who owns a house and who owns how many houses?”

According to Associate Professor Dr Sr Noor Rosly Hanif, dean of the Faculty of Built Environment, University of Malaya (UM), those who need affordable housing are mostly aged 35 and below, saying that most residential tenants are within this age grouping.

The benchmark set by the My First Home Scheme — announced by the government in 2011 to assist young couples earning not more than RM3,000 per month to own their first home — echoes Noor Rosly’s comment, setting the bar at 35 years old and below as the age group that needs affordable housing help.

Current estimates by the Department of Statistics place 28.36% of Malaysians, or about 8.49 million out of 29.95 million, as aged between 20 to 34 years old.

However, it is unclear on an individual basis how many Malaysians within this age group already own residential properties. It follows that it is unclear exactly how many Malaysians do not own a house and need affordable housing units.

“What we need to know is who actually needs a house and who doesn’t,” said Mani.

While there is perhaps need of such a register, Noor Rosly feels the government will have to re-examine the constitution to make the idea work. “Under the Malaysian constitution, land falls under the purview of state governments.”

Restructuring the market

In addition to a national registry to keep track of property ownership, Mani also argues that the housing market at large needs to be controlled in order to protect subsidised housing units from being swept up by speculative activities.

“Even if the developers and the government do produce affordable housing the benefits are enjoyed by the first buyers — subsequently the prices increase owing to speculation because the original prices were controlled,” said the former president of the Board of Valuers, Appraisers and Estate Agents.

According to Mani, the housing market today is seen as a wealth-creation tool where developers, bankers, entrepreneurs and buyers see property purchases as a business proposition. “A speculative product called housing has been brought into the market in the disguise of a roof over a head, which it is not.”

Instead, housing is “transformed into a wealth-accretive product inviting speculators with easy money to dabble (in) and reap profits”, said Mani, further asking “how will this help create affordable housing?”

“We need a two- or even three-tiered housing market to tackle different issues,” concluded the chartered surveyor.

While the high-end segment does not need control since buyers in this segment do not need government assistance, entry level approvals and taxation must be high, said Mani. On the other hand, the controlled market must be for those who do not own any houses.

“Register and examine all those who want to buy a house and who do not own any now,” suggested Mani. “Control the entire supply chain from land assembly to delivery (and) ensure no transactions take place including power of attorney or proxy buying. This is to ensure all those who do not own any houses and need one are able to secure one.”

Mani’s suggestion seemingly goes hand-in-hand with previous calls for higher real property gains tax (RPGT) rates aimed at curbing speculation in the property market.

Additionally, PR1MA also imposes a 10-year moratorium on its buyers that prohibits them from selling, renting or transferring their units to another party within the timeframe unless they are selling back to PR1MA.

But is 10 years enough?

Noor Rosly thinks that period may not suffice, as market forces would eventually drive up the prices of the houses once the moratorium ends.

“If you’re going to impose some sort of control (like the moratorium), it should be continuous,” said Noor Rosly to KiniBiz. “The aim should be to help everyone own their own home.”

Are developers the cavalry?

However, the housing market remains one where developers ply their trade. As the main players in the industry, should they be roped in to help provide affordable houses for the masses?

It is worth noting that PR1MA’s stated mandate is to bring in 500,000 affordable housing units by 2018, with 80,000 of that figure rolled out by this year.

However, half a million affordable homes by 2018 may not be enough to cope with the demand, said Noor Rosly of UM.

“It is definitely not enough, because our population increases year by year,” said Noor Rosly. “The government has to do something (beyond PR1MA).”

In the housing ministry’s Workshop on Initiatives to Reduce House Prices in August, industry stakeholders were asked whether developers should be incentivised to build houses in the affordable range.

More than two-thirds of the participants said yes.

Lim Hock San, managing director of LBS Bina — a developer traditionally associated with the affordable segment — feels that it is a viable option, reiterating the developers’ call for the government to build the low-cost and medium-cost houses and leave the developers to build just the affordable housing units.

At a minimum, said Lim, this allows developers to build affordable housing instead of having the low-cost and medium-cost units being imposed on them. “I think most developers would agree — at least (developers) don’t make a loss.”

“Some people think developers are very greedy, but who wants to do business at a loss?” said Lim, adding that listed developers in particular are responsible to their shareholders.

‘Reinforcements? Clean up the supply chain instead’

Instead of giving incentives to developers, however, Real Estate and Housing Developers Association (Rehda) national treasurer NK Tong felt improving the efficiency of the housing delivery system is more urgent.

“It’s (about) getting faster approvals, removing all these extra utilities costs, all the extra requirements,” said Tong to KiniBiz in an earlier interview, referring to spiralling costs that are squeezing developers out of the affordable segment.

Tong’s comment on cost reduction is echoed by Yeah Kim Leng, chief economist of RAM Holdings, who believes that part of what the government needs to do in attracting developers to the affordable housing segment is facilitating lower construction costs.

“Ensure there are no ‘cartels’ dealing in construction materials — sand, cement, iron and steel — that could artificially increase the prices and the building costs,” said Yeah to KiniBiz in an earlier interview. “These industries have to be kept competitive to ensure that there is no monopoly that could raise prices unjustifiably.”

However, Yeah also argued for preferential tax rates for developers from affordable housing projects, which would reduce costs thus compensating developers’ lower profit rates — effectively incentivising devleopers who build affordable housing.

“Perhaps profits from affordable housing projects can be taxed at a lower rate. Or they could be given some form of double tax allowances or accelerated appreciation allowances for any investment in affordable housing,” said Yeah.

Additionally, land apportionment is also one aspect which the government should look at, said Yeah,  saying that the government has the biggest role to play in providing land at low cost for developers to build affordable  housing.

Otherwise, a poor location that lacks infrastructure and has poor accessibility will spell the failure for any affordable housing project.

Streamlining the housing agenda

At the end of the day, Noor Rosly feels that the first step on the government’s part should simply be integrating the various housing initiatives we have to be more centralised.

PR1MA currently reports to the prime minister’s office while SPNB is under the purview of the housing minister. In addition various housing initiatives also fall under their respective state governments.

While the housing minister Abdul Rahman Dahlan has stated that he has put into place a co-ordination mechanism whereby he chairs regular co-ordination meetings between the various housing agencies, perhaps it should be stepped up to full integration.

“PR1MA, SPNB (Syarikat Perumahan Negara Bhd), 1MDB (1Malaysia Development Board), PPR (People’s Housing Programme), etc should all be (fully) under one minister,” said Noor Rosly.

Yesterday: PR1MA – Good intentions, questionable implementation?

Tomorrow: Unravelling the affordable housing mess