Priced off Penang: Who can afford an island home?

loading Penang state is divided into five districts: Northeast, Southwest, Northern Seberang Perai, Central Seberang Perai and Southern Seberang Perai. Only Northeast and Southwest are located on the island.

New residential projects on Penang Island seem priced to suit either the rich or the poor. Finding an affordable home on the island is becoming impossible for those in the middle income bracket, especially those who are single. Are wealthy foreigners to blame, or greedy developers, or outmoded guidelines? Or are Penangites simply spoiled?

Property prices in Penang have skyrocketed in recent years, particularly in the northeastern region of the island, and young Penangites now face the prospect of renting, or finding a home much further away. Even the middle class, the supposed drivers of Penang’s “knowledge economy”, are being priced out of the island.

Meanwhile, the island is experiencing an unprecedented boom in luxury properties. Apartments along the popular Gurney Drive begin from over RM1mil, and new luxury condominiums in Tanjung Bungah along the beachfront start at an even higher level.

On the other end of the spectrum are low and low-medium cost houses that cost between RM25,000 and RM42,000 and that are meant for those earning up to RM1,500 a month (RM2,500 in the city).

The middle class, classified as those making RM2,500 to RM4,000 a month in household income, are therefore not entitled to low cost housing. The lower income group can at least turn to low-cost housing programmes, two-year waiting period notwithstanding. The average household income in Malaysia is, according to the Malaysian Employers Federation, RM4,000 a month; 30% of households make more than that per month, while just 4.9% make more than RM10,000.

Climbing a ladder that keeps growing longer

So how expensive are Penang properties? A terrace house at 2,800-3,600 square feet in Damansara, Kuala Lumpur, considered to be a desirable high-end location, will cost from RM808,000 to RM958,000. In comparison, a similar property in Relau, Penang, which is not exactly a high-end market, will cost from RM800,000 to RM1.6mil.

The middle class have limited opportunities when buying a property, and thus take a much longer time climbing the property ladder. For many, their only options would be to rent a property, or find a place much further away. While there are properties on the mainland within their price range, many Penangites who grew up on the island don’t find the idea of leaving the island appealing.

“I believe people should have the first right towards living on the island,” said Chris Lee, 28, a freelance English teacher. Lee earns an average of RM2,500 a month, and shares an apartment with his uncle in Edgecumbe Road; his parents live next door. The most reasonable price range for someone with his salary, he said, would be about RM200,000. “There are none available that I know of,” he said, certainly not in the town area, or Pulau Tikus or Tanjung Bungah, places he referred to as “good living environments”. “Right now, everything else seems to be at the high end.”

Alicia Tan feels the same way. She is a Web producer for a multinational, earning RM3,000 to RM5,000 a month and has five years of working experience. “I am typical of the majority of people looking to purchase their first home,” she said. Tan currently lives with her parents in a singlestorey terrace house in Jelutong, now worth about RM400,000. She intends to buy a home one day, but foresees difficulties, because of the “ridiculous prices” for condominiums and apartments. “Even more ridiculous are the prices for landed properties.”

How did we get here?

In fact, saturation in the Northeast is a serious issue, according to YB Wong Hon Wai, state assemblyman for Air Itam, and State Exco for Town and Country Planning, Housing and Arts. “Over the past 10-20 years, there’s been a lot of residential construction, so it’s more or less saturated.”

Much of the blame is also put on overseas buyers. Thanks to the Malaysia My Second Home (MM2H) programme, foreigners are flocking to buy luxury properties in Penang spurred on by the weak Ringgit. Datuk Jerry Chan, chairman of the Real Estate and Housing Developers’ Association (REHDA), Penang branch, said that this is simply a side effect of Penang’s success.

“If a government is successful in attracting attention to itself, you’re going to benefit, but it will also come with some costs. If you market yourself as a very liveable city under the MM2H, then you find that people will come in with money and start buying up property. When you promote yourself from a heritage angle, you will attract investors. There will be more attention, more interest and a greater pool of money than you ever thought possible.

“That would be a reflection of your success,” he added. “(High property prices) are unavoidable because Penang’s land mass is small.

“I think the government in Penang is in a Catch-22 situation,” Chan said. “It needs to do all it can to promote the state, bring in fresh money and create employment. It needs to sell Penang. The consequence is more competition, and supply is limited. That’s the whole problem on the island.”

Interest rates have also played a role. The base lending rate last year was at a historic low of 5.5%, (this has since gone up to 6.3%). “Bank Negara’s monetary policy is quite relaxed,” said Wong. “That has encouraged people to buy. There’s also expectation among purchasers that the housing price will go up.” But while the state government keeps track of buyers of low cost and lowmedium cost houses, no similar database exists for medium cost and higher- end houses. Here, market forces are in full play.

“People continue to perceive property as a very safe investment,” said Chan. “They are not really going to be bothered if their property is left vacant for some time.”

But the financing institutions may be going too far in handing out loans. “The banks are financing too much, up to 95% in some cases,” said Dr Michael Lim Mah Hui, a former senior specialist with the Asian Development Bank and currently a SERI senior research fellow. “That’s making people buy a lot of houses when they really don’t have the capacity to buy or service the loans.”

The lack of land certainly doesn’t help. “If the state government has no land to offer to the public and they have to depend on the private sector, the private sector will say they have to buy land at market prices, and they have to sell buildings at market prices,” Chan said. “You can’t tell Apple, ‘Your iPhone is too popular, you can’t be selling it for X thousand ringgit.’”

Pushed out

It looks as though the only thing the middle class can do for now, other than rent, is move to where properties are more affordable. “Further” here can mean Balik Pulau, located on the other side of the island in the Southwest District, or even on the mainland. This requires a much longer travel time than most Penangites are accustomed to.

Chan believes that this is still an acceptable situation, saying that people in Kuala Lumpur take almost an hour to get to work. “That’s normal travelling time. But in Penang, if it takes more than 20 minutes (to get somewhere) it’s ‘very far’. Cheaper housing is available, but on the mainland.”

He added, “We don’t want a situation where, if you want to come into Penang and don’t have half a million ringgit, don’t even think about it. That’s not the case. On the mainland, you still have houses priced at RM150,000 and bungalows in the region of RM600,000 to RM700,000. It’s not that people don’t have alternatives; it’s that they cannot expect a short travelling time anymore.” Chan acknowledges that he wouldn’t be a popular person in Penang for saying that, but he stands by it. “People need to be realistic. When a city does well, property prices are going to go up. Living in the city is going to be very expensive, and you have to stay a little bit further out.”

“I think Penang is like Hong Kong and Singapore,” Wong said. “We have limited land, so we have to look beyond Penang Island.” He said that the state is working on several options, including opening up new areas for housing in Seberang Prai and the southwestern region of the island. “When the second Penang Bridge is ready, we’re looking at Batu Kawan and Batu Maung (at opposite ends of the bridge).

“City lines shouldn’t only be confined to the George Town area; these have to grow beyond that. Thirty years ago, Bayan Baru was paddy fields. New growth areas, ideally on the planning side, should have a commercial element to offer employment to residents staying there. Each small satellite city should be a self-sustaining township.”

Meanwhile, the National Property Information Centre (NAPIC) reports that while there has been a 19% growth in the northeast for middle-class housing from 2006-2010, Seberang Perai North and Seberang Perai South on the mainland are seeing growths of 31% and 24% respectively in the same period. We may already be witnessing a move to the mainland.

Chan says this is part of progress. “It’s all well and good to say, ‘I wish things were what they were 30 years ago and we didn’t have all this congestion and tall buildings.’ The solution for this is very simple: don’t get married, don’t have children. No population growth; solves all your problems.”

Old city council development guidelines, which had not been reviewed in 27 years, are partly to blame for this, says Chan. “Under the old guidelines, developers were forced to build either expensive landed property or supercondominiums.” The old guidelines set strict limitations, where if a developer wants to build smaller, cheaper units up to 1,400 square feet, they were allowed to build up to a maximum of 42,000 square feet of built-up area. Luxury properties like super-condominiums have no such limits set on them, and developers would be able to develop built-up areas much larger than 42,000 square feet, allowing them to sell much larger units at significantly higher prices. The guidelines were recently revised, in June 2010.

“ People need to be realistic. When a city does well, property prices are going to go up. Living in the city is going to be very expensive, and you have to stay a little bit further out.”

Pushing back

Dato’ Dr Goh Ban Lee, a SERI senior research fellow who served in the first National Economic Consultative Council (1989-1991), doesn’t care for the suggestion that the MM2H programme is an indication of Penang’s success. “Is (the MM2H) a benchmark for success? Why? How do we benefit from that?”

Lee is similarly disgruntled. “The MM2H is constantly raising the prices of our homes. Developers have given up on marketing to locals and are targeting foreigners all the way to reap bigger profits. Penangites are being driven off the island.”

Goh also strongly disagrees that Penangites have to get used to living farther away. “I think people should come back and stay in the city,” he said. “The Penang population is so small! The whole island has less than a million people. I won’t be surprised if this year’s census shows the population of George Town at only about 200,000. It was already at 250,000 in 1970. So why should we expect people to move out?”

Commuting from the mainland to work certainly isn’t appealing to many on the island. Angelina, who works in IT support and earns just over RM3,000, says she wouldn’t want to move. “I’m too used to the lifestyle here. I know the mainland has a lot of stuff , but the ‘feel’ is different.” Angelina currently lives with her parents in an apartment in Sungai Nibong.

Design engineer Ong Chee Fong agrees. Ong earns RM5,000 to RM6,000 a month and managed to buy a property in Tanjung Bungah, albeit one well above the price range he was looking for. He balked at the prospect of travelling daily across the Penang Bridge. “The traffic jam will always be there. You’re talking about 2,000 factory workers in Bayan Lepas, about a quarter of whom cross the bridge every morning. There may be three lanes now on the bridge, but if there’s an accident on just one lane then it wouldn’t matter. With the toll of RM7 and petrol, the costs would come to about RM100 a week. Forget it.”

Tan holds the same opinion. “The less time I spend in my car – have you seen the insane drivers on the road these days? – and the quicker I get to my destination, the happier I am.”

With island properties being so expensive, why even live in Penang anymore? Tan is one of those who had considered moving. “The thought has crossed my mind. But it’s going to be tough to uproot and start anew.”

What’s next

Some steps have been taken to ease Penangites’ home affordability woes. City Council development policies have been reviewed, for the first time in 27 years, and some of the recently approved changes will allow for higher density development in certain areas of the island, thereby allowing more people to live there. This increase in density is only for places that can be accessible by public transport, and potential routes and stops have been highlighted for future development.

Wong believes that price controls, plus the revised density guidelines, will help stabilise property prices. He adds that the state government is also looking into urban renewal projects. Presently, the Rifle Range Urban Renewal Design Ideas Competition is being held to seek ways to improve that area.

The change in density guidelines has been a long time coming. “It is obvious in an island city state to allow higher densities,” Chan says. “That is unavoidable. The funny thing is that Penang has lower densities than KL and that’s ridiculous. We know KL is a lot larger, and you have satellite towns like Shah Alam, Petaling Jaya and Klang, yet in Penang we are still constricting the density.”

While Chan appreciated the review of the guidelines, he believes that some issues need to be looked at again. “They always replicate requirements, regardless of what the reality is on the ground, like the need for religious buildings when there are already religious buildings in the surroundings. They have to be a bit more cognizant of what the actual needs are. Everyone has to realise that costs get passed down. So if we want more competitively priced houses, then they should ask developers, ‘Tell me what is not needed, I’ll take it off , but only if you agree to sell your houses at this price?’ Then it’s a win-win situation. The developer does not lose money and no new cost needs to be passed on.”

But Wong is adamant that new growth areas must be opened up. “There are pockets of land (in the northeast) that can be developed for housing, but we have to look beyond that, to the southwest, to Seberang Perai.” Some agriculture land may also need to be used. “Some areas classified as agriculture,” said Wong, “have hardly seen agricultural activities for a long time. We have to find new ways to stabilise the property price through supply.”

Goh believes that research needs to be carried out on the “real” reasons why property prices are increasing so quickly; he is not convinced that rising costs are the only factor. Lim is in agreement. “Construction cost is the same everywhere,” he said. “That’s not the issue.”

Goh also pointed to the economic performance of Penang and the country and said that things simply didn’t add up. Penang’s annual percentage growth in 2008 was 4.8% (Malaysia’s was 4.6%). In 2009 it was -1.9%, and is estimated to rise to 7.9% for 2010. “Yet property prices have gone through the roof. Why?”

Chan is aware of the growing discontent among the middle class. “Would islanders feel that there’s no place left for them?” said Chan. “With the new guidelines, hopefully we will see a renewed supply of units priced below half a million ringgit.”

Tan raises the interesting point that Malaysia is currently in a property bubble, but Chan doesn’t believe that such is the case in Penang. “My stand has always been this: if it’s 5-10% appreciation a year, and not for six to seven years continually without rest or plateauing of some sort, then I think it’s sustainable. But not if it is 15-20% a year. There’s always a need for caution, but I don’t think we’re in a bubble. There’s a lot of money in the system, there’s a lot of wealth creation and we are on the uptick as far as the economy is concerned.”

Lim said. “At the same time, we know what the conditions are that lead to a bubble, like speculation and over-lending. Some of these conditions are there.”

Regardless of the reasons for the price increase, or whether or not it’s fair to ask Penangites to commute from the other side of the island or the mainland, there is no end in sight to the home affordability issue. Penangites who grew up dreaming of buying their own homes in a comfortable part of the island, be it Tanjung Bungah or Island Glades, may need to be more realistic.

Special thanks to Mohd Firdaus and Stuart MacDonald for their invaluable research and assistance.



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