The Urban Wellbeing, Housing and Local Government Ministry recently announced the introduction of an initiative that enables property developers to give out loans to buyers at an interest rate of between 12% and 18%.
Its minister, Tan Sri Noh Omar said the move is intended to assist Malaysians who are unable to get a full housing loan from banks, referring to soaring property prices and young adults who find it difficult to get loans from banks.
In an effort to relief buyers’ burdens (by reducing property prices), the ministry says it is making available more “money lenders” to make up for banks that do not offer full loans (to avoid buyers taking up a loan out of their means).
Says PKR Investment and Trade Bureau Chief Wong Chen it is a crazy suggestion and a mere knee jerk reaction to the demands of housing developers to counteract a dire housing market.
“Currently, banks are only giving 50% to 60% financing on property and as a result, houses are not selling.
“In searching for a solution, the ministry is suggesting to turn housing developers into moneylenders?” Wong questions.
He adds that the illogical policy solutions serve to only mask these three fundamental issues about housing in Malaysia where firstly, developers are making too much profit.
“On an average over a period of 10 years, eight years are of developers making big profits and two years’ property slowdown. These housing developers make an average profit before tax returns, of around 15% to 20%.
“It’s an industry of high margins and very expensive goods. In short, it’s the best game in town,” he says.
He explains that these companies are able to make these incredible margins due to several factors which include efficiency, economies of scale, good designs and understanding the market.
“Those are good for the industries and buyers. However there are also some who make big margins from a ‘kowtim’ (bribery that offers shortcuts) culture.
“Getting land cheap from state governments. Getting extraordinary approvals and plot ratios from councils. Getting discretionary waivers on Bumiputera lots,” he says.
The result: people are stuck in a middle income trap, Wong says.
He explains that for every household who receives BR1M (Bantuan Rakyat 1Malaysia) – and that’s a staggering 70% – they can basically be written off as not the potential house buyers of properties above RM250,000.
“So what we have is a situation where most house-buyers (the top 30% non-BR1M recipients) already own a home and possibly a second home for investment.
“In addition, the top 5% are powerful speculators. Wives of the rich and powerful indulge in house buying.
“House-buyers’ clubs have sprung up. There is nothing wrong with what rich people want to do with their money, but the housing ‘problem’ is really about the top 5% and top 30%, simply because the bottom 70% are priced out of the equation.
“So if the housing market wants to really recover, we need to get 70% to be house buyers, which means their wages and wealth situation need to improve. The current dire housing market situation indicates that there is just so many houses a rich ‘tai-tai’ (wealthy married women) can speculate on.
Wong points out that the government’s problem is its failure to provide social housing.
He adds that if the bottom 70% cannot afford to be in the housing market, then something must be done to enable them to at least own an asset (wealth building).
“We all understand that property is a sound investment, whereas owning a car is an investment folly. In order to get the bottom 70% into the market requires meticulous and honest social housing policies.
“The current policies fall far short of these objectives with the creation of slums and slum landlords.
“With social housing in place, the bottom 70% can trade up to better properties when their financial situation improves.
“That is how the current market can be sustainable in the longer term, by empowering a culture of house ownerships for the bottom 70%,” says Wong.
Wong also responded to the National House Buyers’ Association (HBA) Secretary-General Chang Kim Loong who suggested for the government to intervene in bringing down house prices.
Wong says the Federal Government cannot control prices of commercial housing.
“It can however incentivise private developers to do social housing. It can give incentives such as tax breaks or contribute federal lands at nominal costs.
“However, all these deals must be transparent and fair and it is not difficult for government to structure a win-win deal because a team of professional quantity surveyors, engineers and architects can do the costings accurately,” says Wong.
He adds that the government must also not cap profit margins.
“If the market is efficient and corruption is eliminated, profits of developers will settle around 8% to 12%.
“This will be a reasonable return on par with developed countries like the UK and Hong Kong,” he says.
Soo Wern Jun