Longing for A Penang Home


Housing and home ownership are issues that always need intricate rules. This gives the state government space for innovative policies.

Buying a house can be a daunting idea, especially for those who are just entering the workforce. And it’s no secret that homes in Penang – highly attractive as a place to live, work, play and retire, and with limited land on the island – can be pricey.

In an effort to house as many people who wish to live in Penang as possible, the state government has been taking active measures: in 2011, it established the Public and Affordable Housing Fund with an initial grant of RM500mil. Its purpose was to expand the stock of public and affordable housing – either through the state’s own development projects or through partnerships with the private sector – in all five districts of Penang.

Between 2008 and 2016, a total of 20,887 housing units were built.

New housing rules also came into effect on February 1, 2014: the state embarked on a two-pronged approach with the introduction of a new category of public and affordable housing, and the implementation of cooling measures to ensure housing affordability for its low and middle-income citizens and to rein in housing prices on the island.

Making Housing More Affordable

Under the new housing category, public housing Type A (low cost) and Type B (low-medium cost) are priced at RM42,000 and RM72,500 respectively, and have a 10-year moratorium in place.1 Affordable housing Type C is valued between RM150,000 and RM300,000 on the island and is capped at RM250,000 on the mainland and have a five-year moratorium from the Sale and Purchase Agreement (SPA) signed from February 1, 2014 onward.2

Owners who wish to sell during the stipulated moratorium period must appeal to the state government, and the properties can only be sold to listed buyers (individuals who have registered with the State Housing Department and are classified as being either in the low or middle-income group3).

To encourage private sector involvement in its 100% affordable housing initiative, the state government offered incentives such as an exemption to the 30% low and low-medium-cost components, and a reduction in development charges by two-thirds, from RM15 per sq ft to RM5.4.5

Housing developments in Air Itam.

Housing price caps for non-Malaysians have also been put into effect. In March this year, the state government announced its decision only to allow landed property purchases by foreigners which are worth above RM3mil, and RM1mil for stratified properties on the island.6 On the mainland, the minimum purchase price for landed properties is RM1mil and RM500,000 for stratified properties.

In the same announcement, the state government has also agreed to halve the approval fee for foreign purchasers of some stratified properties on the island from 3% to 1.5% based on the proposals submitted by the Penang Real Estate and Housing Developers Association (Rehda).7 The approval fee of 3% was introduced to contain foreign property flipping, but exemptions are provided for purchases for industry purposes or for projects that promote employment, education, human talent, or that enhance Penang as an international and intelligent city.8

An approval fee of 2% is additionally imposed on the seller of all properties sold within three years of the signed SPA from February 1, 2014 – public and affordable housing notwithstanding – in a bid to curb speculative activities.

Malaysia’s Financial Model

“The issue of housing and affordability of housing is not unique to Penang or to Malaysia,” says economist Dr Lim Kim Hwa during a forum hosted by Penang Institute titled “Housing in Malaysia: Issues, Challenges and the Way Forward” held in May. “If you look at London, Vancouver, Hong Kong, Singapore, and Australia, all these cities and countries have similar issues with housing affordability.

“It is both a local and a global issue. Take Singapore for example: the country has a very strict anti-speculative policy which has resulted in the falling of property prices. But in Hong Kong, property prices are on the rise despite the local government imposing levies.”

As the primary question of homeownership often comes down to qualifying for a mortgage loan, Lim provides a detailed explanation of how first-time house buyers are impacted by the country’s current financial model: “The level of financing is a key element of any property purchase. In Malaysia, we adopt a ‘hype system’ whereby there’s not much difference between a loan used to finance self-occupied property versus a mortgage used for investment purposes.”

He compares the financial situation with the UK: “There, if you buy a property for self-use, you will be assessed slightly differently from a property you bought for investment purposes. Properties used for investment purposes are judged mainly in terms of the level of rental yielded and the interest you will be paying versus the amount of free cash flow that you have and the amount of interest covered and the repayment that you will be able to judge.

“It is a very difficult balance that one has to strike in terms of imposing the right level of policies, levies and penalties, or taxations control speculative activities while allowing the market to perform its signalling price mechanism. The financing model is indeed an issue, but it is not as simple as reversing the policy.”

Buying property from a secondary market is recommended.

Hindered by Banks

For first-time house buyers, getting a loan is far from a walk in the park. According to Jagdeep Singh Deo, the state executive councillor for Housing and Town and Country Planning, “We are working very hard to ensure families from low-income groups are housed while ensuring there is adequate stock of public and affordable housing. This has been made difficult by the high loan rejection rate of first-time house buyers – as high as 70%. The Association of Banks in Malaysia downplayed the figure to only 20%, but both the State Housing Department and Penang Rehda have our own numbers.”

There are several categories set by the Housing Department for individuals to qualify for housing eligibility: applicants for types A and B housing must now have a monthly income that exceeds RM2,500 and RM3,500 respectively. For types C1, C2, and C3 housing, applicants cannot earn more than RM6,000, RM8,000, and RM10,000 a month, respectively.

Jagdeep Singh Deo.

This is starkly different from the banks’ eligibility criteria: “I believe the banks should not have a one-size-fits-all policy – it is unfair for the person who earns RM2,500 a month and has to take the bus to the bank for a loan request to be subject to the same policy as someone who pulls up to the bank in a Bentley.”

Jagdeep uses the first phase of Bandar Cassia, a new township in Batu Kawan scheduled for physical completion by the year’s end, as an example. Phase One has 520 units for sale, but only 44% of the units have been sold to date. “This is in spite of the Housing Department having vetted through to the applicants. We compiled over 1,000 genuine applicants, but only 44% managed to secure housing loans. And this is just a state government project!

“Banks are worried that low-income earners will not be able to service their loans. In the worst-case scenario, yes, there will be foreclosures. But there is security in the property purchased,” says Jagdeep. “We have been in communication with Bank Negara Malaysia (BNM) about the issue. For their part, they have explained their views on the matter – they are worried about the risk factors. So BNM and the Housing Department have come up with several measures to see how we can go about reducing the high loan rejection rate.

“One such measure is to require all applicants to submit their Central Credit Reference Information System (CCRIS) records so we are able to ascertain from the beginning if the applicants will have problems securing housing loans. If they do, we will counsel them on ways to improve their credit worthiness. I’m happy to say that we have seen some improvements so far. But of course, I’ve also brought it to BNM’s attention the various ways to address the issue, including progressive payment and tiered payment. It’s about time BNM came up with a policy to assist the low-income earners and direct all commercial banks to adhere to the policy.”

Jagdeep shares how the state’s Shared Ownership Scheme (SOS), modelled after the UK, had to be scrapped due to the high loan rejection rate: “SOS was a scheme where the state would share the property with the buyer. If the property is worth RM100,000, the state would contribute 30%, or RM30,000, but the buyer would have to come up with the remaining RM70,000. While the buyer services the RM70,000 to the bank, he will also be servicing the RM30,000 – without interest – to the state. Once payment is completed, the entire property will be his to own – that was the initial idea.

“Unfortunately, we came across a couple of stumbling blocks along the way – the first being the buyer’s inability to secure a housing loan and the second pertaining to the incorporation of Schedules G and H in the Housing Development (Control and Licensing) Act 1966.9 All SPA in Malaysia must abide by these Schedules, which is why SOS had to be abandoned.”

The state is still looking for ways to house everyone: “There are other schemes that we’re mulling over, such as the Rent-to-Own scheme. It’s a good policy, but a huge amount of money is needed for it. Unlike the federal government, the state government does not have the required financial resources at its disposal. Even so, we’re doing all we can: we have actually started the Rent-to-Own scheme through two of our projects in Seberang Perai South and the response has been very good so far.”

Tanjung Bungah on the island is a popular suburb.

Making the Right Choice

With new developments rising from the ground, first-time house buyers can be lured by the attractiveness of owning a brand new property. But new isn’t always best:

“There have been a lot of cases lodged at the Ministry of Urban Wellbeing, Housing and Local Government recently concerning the issue of vacant possessions given to house buyers without electricity and water,” says honorary secretary-general of the National House Buyers Association (HBA) Chang Kim Loong. “How is an owner expected to stay in a house without these basic necessities? It’s the developer’s job to apply for them, that’s part of the bargain of when a house is purchased.”

And when buying a property that is not yet completed, there are other risks as well: “You have to be alerted of the developer’s track record and their financial means to complete the project,” says Chang, who recommends buying property from a secondary market instead. “It would be an easier undertaking instead of risking an extension of time (EOT) regulation of 24 to 36 months and pray that your house will be completed by then.”

This is in reference to the former Minister of Urban Wellbeing, Housing and Local Government Datuk Seri Abdul Rahman Dahlan who granted an EOT of 12 months to developer, BHL Construction, to complete the construction of a condominium in Jalan Kuchai Lama where 104 house buyers had entered into an SPA with them. One of the conditions of the agreement required that the developer hand over vacant possession within 36 months or be liable to pay a penalty for late delivery to the buyers. The developer failed to meet the stipulated condition and appealed to Abdul Rahman for an EOT. On November 17, 2015, an extension of 12 months was granted. That decision would have allowed the developer to hand over vacant possession to the buyers anywhere between 36 months and 48 months. Aggrieved, the buyers sought legal remedy in court last year.10 The case is ongoing.

The federal government has since made it compulsory for all developers licensed under the Ministry of Urban Wellbeing, Housing and Local Government to provide a full set of detailed approved documents of the property, including the detailed dimensions of the property and its facilities, to house buyers at the outset as part of the building plan attached to the statutory SPA.11

The responsibilities that come with owning a home are understandably daunting for first timers. To smoothen things, the Penang government aims to see that everyone has a roof over their heads. As Chief Minister Lim Guan Eng reassures, “The state government is committed to the vision of democratising housing in Penang, and we are constantly exploring new ways to achieve this vision.”


1 www.penangpropertytalk.com/2016/12/ensuring- affordable-homes-for-penang-folk.
2 Ibid.
3 https://limguaneng.com/index.php/2013/12/08/ new-housing-rules-from-1-february-2014-to- protect-penang-from-being-adversely-affected- by-a-property-bubble-enbmcn. www.facebook.com/buletinmutiara/photos/a.1216 744838342964.1073746494.211734085510716/1 216744851676296/?type=3&size=1200%2C795&f bid=1216744851676296.
4www.facebook.com/buletinmutiara/photos/a.1216744838342964.1073746494.211734085510716/1216744851676296/?type=3&size=1200%2C795&f bid=1216744851676296. 
5 http://www.thesundaily.my/news/2190186
6 www.themalaymailonline.com/malaysia/article/penang-halves-fee-for-some-foreign-buyers-but- raises-price- oor-to-rm3m.
7 Ibid.
9 For more information, go to http:// propertyinsight.com.my/blog/buying-hda- properties.
10 www.freemalaysiatoday.com/category/ nation/2017/02/27/court-rules-ministers-order-for- extension-of-time-invalid.
11 www.thestar.com.my/business/business- news/2014/06/28/fulldisclosure-by-developers- they-need-to-give-the-clients-detailed- documents-of-property-purchased.

Related Articles