Push for affordable housing

JOHN, 25, is a new lawyer with a Kuala Lumpur-based legal firm and earns RM3,200 per month. He plans to get married next year, and has been looking for a “nice tiny apartment” to settle down.

After spending many weekends looking around, John says he and his wife-to-be “fell in love with a cozy little place” in Seri Kembangan – a three-bedroom apartment starting from RM460,000.

All looked set for the couple, until his loan was rejected. He had recently obtained a loan for a new car – as travelling to different states for court hearings was the norm at his firm.

This is compounded by the fact that his fiancé was recently retrenched – so it’s no surprise that money has been tight for the couple.

John says he has the resources for a 10% down payment for the apartment, but his bank is only offering an 80% loan facility.

“Because of our salaries, we were not able to come up with the remaining 10%,” he laments.

John’s situation is familiar – many first-time home buyers are struggling to purchase a home given the high cost of living.

“What would be great is the banks are able to provide a higher financing margin, like 90%,” says John.

The budding lawyer had many discussions with his partner on possible alternatives for the remaining 10% – from borrowing from friends, family or ah long.

Out of reach: The oversupply of properties costing RM1mil and above has forced developers to change their strategies.

 

Developers to ‘bridge’ the gap

For John, the recent announcement by Urban Wellbeing, Housing and Local Government Minister Tan Sri Noh Omar that eligible housing developers could apply for moneylender licences and provide loans of up to 100% to property buyers seem like light at the end of the tunnel.

For someone like John, it could also be light from an oncoming train as the interest rates will be very high, compared with commercial banks housing loan at about 4.5% to 5.5%.

The minister said developers can gain from property sales and profit from end-financing as well, while the country’s pool of potential homeowners will be widened.

The licences will be issued by the ministry under the Moneylenders Act 1951 (Amendment) 2011.

The announcement was met with mixed responses. The National House Buyers Association and some developers likened the situation to a licensed ah long, suggesting that this could lead to developers pricing their products at unsustainable prices, thus accelerating a housing bubble.

At a media briefing on Wednesday on its Property Industry Survey for the first half of 2016, the Real Estate and Housing Developers’ Association Malaysia (Rehda) president Datuk Seri FD Iskandar sought for caution as the move comes with risks.

“There are risks involved as not all developers can do this. There’s no such thing as developers who can finance 100%. Not all developers even have the balance sheet to do the 10% to 15% ‘bridge’.”

He emphasised that there is an urgent need to assist buyers, especially those within the middle-income group - like John.

The problem is that buyers get between 75% and 80% of financing. “That’s the average, we’ve checked. But someone has to come in to provide that remaining 10% to 15%, or bridging financing,” FD Iskandar says.

The Rehda survey was conducted in the first half of this year to assess market performance.

Rejection by banks for end-financing affects properties priced between RM250,000 and RM2.5mil, particularly for properties priced between RM500,000 and RM700,000 (24%). Six per cent of properties RM250,000 and below were affected and for properties RM2.5mil and above, 7%.

Because of the high loan rejection rate, FD Iskandar says lending by developers should be capped at properties below RM500,000 to assist first-time homebuyers and genuine upgraders.

Limiting it at the RM500,000-mark would also mean that the move would not see the entry of speculators which will only result in prices spiking – leaving cash-strapped end-users such as John unable to purchase property.

Following a Cabinet meeting on Wednesday, Noh said in a statement that his ministry had been asked to study the effectiveness of the developers’ money lending policy.

One industry observer says young individuals, like John, tend to look for properties that are beyond their pay-grade and should in fact go for something more affordable.

“Instead of looking for a place that they can afford, they go for something that they can’t. So they’ll end up saving and waiting for that property they’ve had their eye on.

“And by the time they can afford it, the price of that unit would have gone up even more and they still can’t afford to buy it!”

One option is to purchase a low-cost apartment or house, he says.

According to Rehda’s Property Industry Survey, a total of 1,022 units of low-cost units with a built-up area of 650 sq ft priced between RM35,000 and RM42,000 were launched in the first half of this year. None of them were sold. A year ago, 650 units were launched, of which 450 units were sold.

This does not necessarily mean that conditions are so bad that people are just not buying properties, says FD Iskandar.

“People don’t live in low-cost homes because the don’t want to be associated with them. If they can afford it, they would prefer to purchase something bigger,” he says.

Confidence factor

According to Rehda’s survey, property sales performance experienced a significant decrease to 39% in the first half of 2016 compared with 52% a year ago.

A total of 7,172 units were launched in the first half of 2016 compared with 10,829 units a year ago. A total of 2,829 units were sold in the first six months of this year compared with 4,371 units in the previous corresponding period.

Half of the residential units launched were priced below RM500,000. Serviced apartments showed a year-on-year increase in sales, rising to 267 units in the first half of 2016 compared with 100 units in the previous corresponding period.

Sales of bungalows and garden villas also recorded a significant increase, with 194 units sold in the first half of 2016 compared with just nine units in the first half of 2015.

The first half of this year also saw significantly more launches of bungalows and garden villas at 361 units compared with just 24 units in the previous corresponding period.

All states were retaining their prices except for Malacca, FD Iskandar says. The “unsold” situation was still manageable despite the decreased in sales performance.

Two- to three-storey landed units have taken over apartments in terms of launches. He says while condominiums and apartments are still available, their take-up rates have dropped.

“The days where people used to queue up are over. That’s not to say that those times will not happen again. The property sector is cyclical. The confidence level is not there.”

FD Iskandar says consumer confidence is influenced by what people see or don’t see. The sight of cranes and workers at construction gives confidence that the sector is doing well.

“What we don’t see, we don’t feel. (The scene of) construction cranes is an indicator that the economy is thriving. But because we don’t see this, it affects confidence.”

With confidence affected and potential buyers such as John having financing problems, Rehda reveals that first time buyers had dropped by 13% during their period surveyed.

First time buyers accounted for 34% of the buyers’ profile compared with 47% in the second half of 2015.

The number of upgraders however increased to 45% from 39%, while the level of investors grew to 18% from 13%. Buyers comprising companies meanwhile grew marginally to 4% from 1%.

Not all gloom and doom

This does not mean people don’t have money, says FD Iskandar.

“If you look at our gross domestic product (GDP), at 4% in the second quarter, it’s still healthy,” he says.

Malaysia’s economic growth had slowed to its slowest in seven years at 4% during the April-June quarter of 2016 from 4.2% in the preceding quarter.

According to Bank Negara, GDP growth in the second quarter was weighed down by the continued decline in net exports and a significant drawdown in stocks. Stronger expansion in domestic consumption growth was the only saving grace for the country’s economy.

FD Iskandar says people are just not spending, especially on houses which are big-ticket items.

But all is not doom and gloom, he says. Sales of properties below RM200,000 grew nearly 2½ times in the first half of 2016, accounting for 14% of total sales compared with just 6% in the previous corresponding period.

A members survey shows that 21% is optimistic about the sectorial outlook for the first half of 2017 while 11% are optimistic about the second half of this year.

“There is a lot of hope that the property market and economy will be better next year,” says FD Iskandar, adding that many developers are using various measures to boost sales.

“These include creative marketing strategies comprising freebies, aggressive participation in exhibitions, review of selling prices and easier financing or payment schemes.”

At the Asian Strategy and Leadership Institute summit in early September, Sunway REIT Management Sdn Bhd’s chief executive officer Datuk Jeffrey Ng Tiong Lip says the current slow market was short-term pain but long-term gain as prices consolidate. 

He expects a recovery in the 2017/2018 period.

“We have to look at national and global macro economy,” he says. Property consultants Savills Malaysia managing director Allan Soo expects a 2019 recovery while Jones Lang Wootton executive director Malathi Thevendren prefers not to put a time line to it. 

Whatever state the sector may be in, FD Iskandar says that there will be demand for housing as Greater Kuala Lumpur population expands from the current seven million to 10 million. There will be a need for an average of 200,000 new units from this year through 2020. “We need about 200,000 new houses per year. Last year, there were only 80,000 units,” he says.

source:  http://www.thestar.com.my/business/business-news/2016/09/17/push-for-affordable-housing/