Aiming for Homes for All
Both the public and private sectors in Penang are busy building for all classes of people.
Childhood best friends Ming and Tan have a lot in common: their ages, careers as bankers and an unfettered love for chocolate.
When it comes to housing choices, however, both went in very different directions. Ming, 32 and a mother of one, bought into low-medium cost (LMC) housing several years after she started working in the financial sector. “I was in my mid-twenties, not married and just looking for a home for myself. Unfortunately, when you start working, the first thing you need is a car to get to work and with that comes both a loan and regular maintenance,” she says.
Landed property, Ming believes, is almost every Penangite’s dream, but it was completely unfeasible for her at the time. “If you want landed property on Penang Island, you need to have a joint income. With a car and on one person’s salary, especially if you work for a fixed income at a desk job, it’s just not possible,” she says.
So, after successfully getting herself on the state’s LMC housing applicant list, Ming paid slightly over RM70,000 for a 700 sq ft apartment in Lip Sin, an initiative of the Penang Development Corporation (PDC), the state’s development agency.
However, now married and with a growing family, both Ming and her husband (who, coincidentally owns another unit in the same project) find the unit cramped and are unable to sell their current homes and upgrade due to the 10-year moratorium imposed on public housing by the state. “We don’t really have options now. We can’t afford to buy a bigger and better place without selling our units and we can’t sell our units until the 10 years are up”, she says.
Years later, despite warnings and skepticism from outsiders, she purchased a condo in the vicinity of the Jelutong landfill. “My unit was 1,012 sq ft and I paid RM280,000 for it. This was around 2010 and the price was really good. On top of that, I got free legal fees, free loan documentation and 0% interest until the handover of the keys. I also only had to pay a 5% down payment as opposed to the 10% that is imposed nowadays,” she says.
Even then, Tan says she needed help putting up the initial payment. “I knew I had enough money in my EPF but at 25 years old, I didn’t have RM14,000 cash at hand. So, I asked my mother for a loan and I paid her back after the sales and purchase (S&P) was stamped and I got the money out of EPF. There’s no way I could have afforded it otherwise,” she says.
Building People, Creating Homes
Tan and Ming are what Real Estate and Housing Developers’ Association (Rehda) Malaysia, Penang branch chairman Datuk Toh Chin Leong describes as typical of today’s house buyers: young, working professionals looking for homes. “There is currently a mismatch between the supply and demand of houses. The rich can afford three or four while the group that really need houses – the young professionals – either cannot afford houses or cannot find houses that they can afford.
“Young professionals look around for something around RM500,000 and realise that there’s nothing much in that range. Their options are either affordable housing or those units in the RM800,000 range,” he says.
Our main objective in the housing department is to ensure that there is adequate affordable housing for Penangites. We are a very attractive state and people want a piece of the pie.
The latter option, however, has become much more difficult with banks tightening loan conditions and a dip in the economy posing struggles for everyone. “A few years ago, the property market was very good. People got interest-free schemes and had money to buy and sell, so developers built a lot of big luxurious units that they could sell easily.
“If you compare things to three years ago, the cost (to build) was also not that high. Now, the land price has doubled, construction costs have doubled, compliance costs have doubled and developers cannot afford to do that anymore.
Compliance conditions and subsidies have always been hurdles for developers, with many outsiders not knowing exactly what they entail. Toh explains that in Malaysia, conditions were imposed on developers to improve surrounding infrastructure like roads and water treatment plants near upcoming developments.
However, he states, the biggest area of subsidy nationwide was the tagging on of LMC and affordable housing units to every project. “In other countries, the tax collector has four responsibilities: medicine or health care, education, infrastructure and social housing. Our problem here is the federal government collects taxes but does not channel the money back to the state governments, meaning the state has no money to do anything and has to ask developers for things like affordable housing.
“The policy today is that each development has to have 30% (of units from the proposed development) that are LMC and another 25% that are affordable housing. No developer will fork out for this – we are all businessmen – and it is passed down to the end-user. So today, when you buy an apartment for RM500,000, you are actually paying RM150,000 for the guy next door who stays in the LMC and affordable housing projects. You are subsiding his house,” Toh says.
In a constant tug-of-war that is the Penang property market, Toh does concede that the state is trying its best to listen to all parties. “We know that sometimes their hands are tied. It’s a juggling act for them, too: they need money to run the state and one of the ways is to get money from developers.
“To be fair, lately, they have been helping. I think they know that we have all been suffering, so, sometimes they make it possible to postpone or stagger the fulfilment of compliance conditions and subsidies. Around October last year, they also helped us by changing the conditions to be based on plot ratio instead of density, which gives developers the flexibility of building different-sized homes in a single project and makes it easier for us to sell to different segments of the market,” he says.
And unlike other commercial business sectors, housing requires constant, frequent and continuous interaction between developer and government, meaning in the end, everyone has no choice but to try and get along. “All over the world, developers work with governments. This is simply because we need land and land is controlled by governments. But despite people thinking we are all evil and greedy, I believe that most developers want to be responsible corporate citizens. After all, we’re here for the long term and it is in our best interest to make Penang continuously better, not worse,” he says.
Reining in the Property Market
The Penang administration and state housing department have clear priorities: making sure there are enough houses for everyone and stopping property prices from completely spinning out of control. “Our main objective in the housing department is to ensure that there is adequate affordable housing for Penangites,” says state executive councillor Jagdeep Singh Deo. “We are a very attractive state and people want a piece of the pie. As a result of Penang’s success, my office has become a pressure cooker. After all, when there is demand, the price goes up – and that is why Penang’s housing prices have seen an acute rise.”
Holding the portfolios of Town and Country Planning as well as Housing, Jagdeep says the state has a two-prong approach in cooling the market down: the first is managing the market through four main methods: compliance requirements on developers, controlling the resale of lowcost (LC) and LMC housing to prevent speculation, imposing fees and minimum house pricing on foreigners, and finally, taxing purchasers who buy and sell property within three years.
“Because affordable housing units Types A and B (commonly known as LC and LMC) are all underpriced and cross-subsidised by developers, they are actually worth much more in the open market than what purchasers pay for them. If we don’t control the resale of these units, there will be major speculation, which will balloon the price of the units. So, we have a 10-year moratorium for LCs, which are originally sold for RM42,000 and LMCs, sold at RM72,500. For Type C or ‘affordable housing’ that is priced at RM150,000, RM200,000 and RM300,000, the moratorium is five years,” he says.
The declining ringgit inevitably means higher purchasing power for foreigners. Thus, in 2012, the state introduced minimum-price purchases for foreigners of RM2mil for landed property and RM1mil for stratified property on Penang Island. For the mainland, the floor prices for foreigners was set at RM1mil for landed and RM500,000 for stratified property. Jagdeep says a further 3% levy of the purchase price was added on February 1, 2014. As for speculators – those whom the state defines as purchasers who resell properties within three years of the principal purchase – a 2% approval fee is imposed upon the subsale price.
Additionally, Jagdeep says the easiest way to control property prices is through direct price control, which is the state’s second prong in regulating the situation. “The state has imposed price caps on the various types of affordable housing products. We reduced Type C pricing, originally ranging from RM200,000 to RM400,000, to RM150,000 to RM300,000 last year. RM150,000 and RM200,000 units are 750 sq ft, the former without finishings, and RM300,000 units are 850 sq ft in size,” he says.
Dealings with PR1MA, the federal government’s affordable housing programme, remain at a standstill with Penang being the only state in the country where a single unit has yet to be built. This, Jagdeep says, is despite three PR1MA projects located in Tasik Gelugor, Bukit Gelugor and Batu Ferringhi totalling 4,742 units having received planning approval.
New moves to engage the private sector were mooted in 2014 to encourage commercial developers to undertake 100% affordable housing projects. “Developers usually have a margin, say 20% profit, before they say the project is viable. Unfortunately, for affordable housing, this hovers at about 7% to 10% while for LC and LMC, you normally build at a loss, which explains the need for cross subsidy,” he says.
To entice private developers to build lower cost homes, the normal compliance orders on developers to build 30% LMC units was negated for 100% affordable housing schemes and development charges – normally RM15 per sq foot – that are paid to the state were reduced to RM5. “Developers have come on board, and so far, we have approved 12,000 units of these affordable housing units. On top of this, we have some 14 projects on the state’s side through PDC in the pipeline which will see nearly 27,000 affordable housing units coming into being,” he says, adding that Bandar Cassia in Batu Kawan was the biggest such project, with the first 520 units well over 90% complete.
Working Against the Grain
With issues like land scarcity on the island, heritage concerns as well as a growing economy, juggling the interests of all of Penang’s stakeholders is hardly an easy feat. With developers, NGOs and house buyers all weighing in, disagreements and discontent are to be expected.
On the idea that the tagging on of affordable housing to big corporate developments has resulted in a price hike for Penangites looking to purchase market-priced homes, Jagdeep says this was an exaggeration by developers. “There are high-end developers who are overcharging and they are using the excuse that they have to crosssubsidise (LMC and affordable housing). When developers build these units, the cost that they incur is only about 10% of the profit they make from selling (the more expensive units) in the open market. They are in fact making a lot of money. The increase to the end price is very minimal and the developers are taking advantage of this,” he says.
We are still recording residential property sales and I hope that 2017 will be a healthier year.
The inability of lower-income house buyers to get loans, Jagdeep contends, is a huge problem. “The biggest challenge for housing nationwide is the extremely high loan rejection rate. For the three types of affordable housing, the rejection rate can go up to 70%. Bank Negara Malaysia (BNM) has been very stringent and this needs to be addressed so first-time house buyers have a chance of getting a home,” he says.
He adds that a policy of “one size fits all” where first-time purchasers are treated the same by banks as high-end buyers was simply not working. “We are engaging with BNM on the issue. We are actually the only state which they visited last year and we discussed several matters, including the eligibility criteria of getting loans and homes.
“One important measure we introduced after our dialogue was the requirement of CCRIS (Central Credit Reference Information System) records from all applicants. This helps our housing department gauge the likelihood of a certain applicant getting a loan,” Jagdeep says.
Applicants who had no or extremely low chances of getting loans were, from the beginning of 2016, channeled to the Credit Counselling and Debt Management Agency (AKPK), a BNM agency tasked to guide people to better credit ratings. “There, they can identify exactly what is making their credit rating low, for example credit card debt. Then, they can address those issues and return to us in two months to be offered units by developers,” he says. Additionally, Jagdeep says the administration was engaging state opposition BN to put up a joint motion to the Federal Government on the issue.
Moving forward, Jagdeep is cautiously optimistic about the direction of the property market for the year. “Overall, the property sector in Malaysia has been on a decline, and that includes Penang. However, the positive side is that of the four major urbanised states – Penang, Selangor, Johor and KL – we have declined the least. We are still recording residential property sales and I hope that 2017 will be a healthier year.”