Govt not Actively Checking the Spiralling House Prices

 I refer to recent reports on the National House Buyers Association (NHBA) expressing concern over the runaway prices of houses. Whilst  there is already a great deal of concern on the part of the average Malaysian on the significant increase in the food prices in recent months, there is even greater concern over the concern over the continuous rise in property prices in major cities and towns in the country.

The NHBA’s concern that the astronomical increase in house prices (both old and new) has virtually locked an entire generation of young adults out of the house buying market hits the bull’s eye. The reasons for the rapid increase are obvious: easy availability of bank loans with very low interest rates; easy payment schemes conceived by creative developers such as the 90:10 or 95:05 schemes where buyers need only pay up to 5pc or 10pc of the purchase price while banks take care of the rest with the developer until completion; and a low real property gains tax (RPGT) of only 5pc. In some cases, developers’ staff book properties in advance, and the property then changes hands to buyers for “fee”.

Many developers also raise the sale price of each phase of the properties they sell, with the excuse that the cost of labour and materials are rising rapidly. In a way, developers have contributed to the inflationary rise in the prices of properties and to their own bottom line. Whilst one cannot deny that labor and material costs will rise, the extent of the rise when translated into the value of the property cannot be justified. Developers may argue that they have holding and labor costs and other risks associated with the business, but look at the annual profit they reap from the sale of properties. More often than not, launches in cities are sold out within hours.

There is a definite need for relevant authorities to look into house prices vis a vis the cost of labor and materials. Soon with the anticipated introduction of the Goods and Service Tax, property prices will go even higher as developers have no choice but to transfer their cost to buyers.

Then there is the issue of speculation on property prices. Not too long ago, developers were clamouring for the government to reduce or exempt house buyers from the RPGT which used to range from 0-30pc depending on years of ownership as well as reduction in stamp duties. The developers’ argument is that due to the overhang of properties, they were unable to sell many of their properties and suffered losses.

The government of course listened and reduced the RPGT to 5pc for gains on properties sold within 5 years of purchase and 0pc for properties sold thereafter and in the process, gave away revenue which it ought to have collected. Well, today look at the effects of meeting the request of developers.

Whilst we don’t deny that there are pockets of unsold properties, many developers have made super profits from the sale of properties, as have buyers (or rather speculators). It is the genuine house buyers who are locked out in the process, firstly by developers charging a high sale price during the launch, and secondly, by speculators who book the property with little seed money and then sell it at a much higher price.

Banks have definitely contributed to the house price syndrome and there is no doubt a need for Bank Negara to quickly deal with this before it’s too late, although may developers and industry players would tell us there is no bubble in sight. Of course, when it happens, the blame game will start and it is the genuine house buyers who suffer.

I agree with the NKBA that the government should review the RPGT act and even the stamp act (like in Singapore and Hong Kong) to deal with speculators, and be well aware that it is losing a rich source of revenue annually. There are no doubt, many speculators in the market (what with easy financing available) who find it easy to make a profit especially those with connections with developers. Many of them have been buying and selling properties within a short period of time and the government should consider instituting legislation to curb this menace.

The previous 30pc RPGT rate should be brought back as soon as possible to tax all profits arising from the sale or transfer of ownership of property within a three-year time frame for purchased completion properties and new properties so as to discourage speculators, many of whom may not have the financial capacity to put in even a decent 20pc-30pc down payment for the purchase price; and Bank Negara should tighten the availability of credit especially to those buying a second or third house. Perhaps stamp duty should also be imposed on sellers who sell their properties within say two years of purchase.

The prices of properties must be monitored and checked by way of financial measures like level of loan versus buyer’s profile and number of properties purchased/sold, and fiscal measures to curb speculation and a quick profit.

So much for the government’s aim to increase the income of the general population and facilitate home ownership for first time buyers. Our children will find it hard to own a house in the future without forever being a debtor to banks.

Concerned Citizen.

Daily Express Sunday Forum

S’pore gains from M’sia’s brain drain

Patrick Lee

Malaysia's brain drain is both heavily Chinese and concentrated just below the border, says a report by the World Bank.

PETALING JAYA: A large portion of the best and the brightest Malaysia has to offer have taken root in Singapore.

According to a 2011 World Bank report entitled “Malaysia Economic Monitor: Brain Drain”, 121, 662 highly-skilled Malaysians migrated to the island nation by 2010.

This accounted for nearly half of the 276, 558 Malaysians registered as “brain drain” individuals by 2010.
Additionally, the report said a total of 385, 979 Malaysians were residents of Singapore in 2010.

“Singapore alone absorbs 57% of the entire (Malaysian) diaspora, with most of the remainder residing in Australia, Brunei, United Kingdom and the United States,” the report added.

On top of that, it said that 88% of Malaysians residing in Singapore were ethnic Chinese, with Malays and Indians accounting for 6% and 5% respectively.

It has been estimated that there are more than one million Malaysians residing overseas.

Top reasons for migration

According to respondents interviewed by the World Bank, the top three drivers of brain drain included career prospects (66%), social injustice (60%) and compensation (54%).

The report also noted a worrying fact: one out of every 10 Malaysian with tertiary degrees in 2000 migrated to countries listed under the OECD (Organisation for Economic Co-operation and Development).

This, the report said, was twice the global average. It added that if the list included Singapore, it would have been two out of 10.

The report also revealed that Malaysia’s brain drain had gone up, claiming that the “skilled diaspora” was three times larger than it was 20 years ago.

However, the report said that the true number of Malaysians in Singapore might be much larger, especially with non-residents working there.

Every day, thousands of Malaysians cross the border over the jam-packed Causeway from Johor Baru to work in the island nation.

Strong sense of attachment

However, the report said that many overseas Malaysians did not scorn their place of birth. “Surveys of the Malaysian diaspora point to a strong sense of attachment to the motherland,” it said.

Numbers showed that almost half of the the Malaysian diaspora possesed a strong sense of patriotism or emotional attachments to the country. Another 20% remained undecided.

“This seems to suggest that many Malaysians remain connected to home even though they are living or studying abroad,” the report added.

It said that many Malaysians were likely to return if “enabling conditions were satisfied”, especially over “talent management policies”.

Respondents surveyed in the report largely suggested a paradigm shift from race-based towards needs-based affirmative action. A large portion also called for a change to take place in the government and public sector.

Adding to these thoughts, the World Bank said there was some progress made with the Government Transformation Programme (GTP) and the Economic Transformation Programme (ETP).

However, the report said in order to have a lasting impact, the country needed more broad-based productivity and “investment climate enhancements.”

“Productivity and inclusiveness lie at the heart of Malaysia’s transformation programme. Implementing these forcefully will go a long way towards turning the brain drain into a gain,” it said.

Housing a social ticking time bomb, say young adults

Lee Wei Lian

Unhappiness among young adults over high property prices could result in social upheaval and possibly even impact election outcomes despite a government move to launch affordable housing schemes.

More and more young adults who comprise a growing portion of the electorate are putting off buying a house and say that property prices have reached a point where it could result in lower standards of living and impact productivity due to the need for long commutes or young adults leaving for higher paying jobs overseas.

Property prices have not been used as election issues in the past but have become a lightning rod of discontent across the Causeway where the opposition has used it to garner popular support in last weekend’s Singapore general election. 

Twenty-something KL media consultant Angela Ooi, who called her cohorts “the homeless generation or urban sprawl generation”, said she gets the impression that the government is more concerned about Gross Domestic Product (GDP) figures and not the predicament of young adults.

“Does the government really care or are they OK as long as they enjoy a flow of revenue from property development and the economy is active?” she asked.

And while she doubted it will emerge as a major election issue here, she would definitely welcome it if a politician would bring it up.

“I would be very happy if any MP raised this issue,” she told The Malaysian Insider.

But Prime Minister Datuk Seri Najib Razak announced last Friday the government will launch an affordable housing scheme for houses below RM220,000 under a public-private sector partnership. He did not give details but said it would be launched in June or July.

Najib’s announcement came after the National House Buyers Association (HBA) warned that an entire generation of young adults risk being locked out of the property market due to runaway house prices.

HBA secretary-general Chang Kim Loong said the rapid inflation of assets has put house ownership beyond the reach of young adults.

“The prices are exorbitant and beyond the reach of young adults,” Chang told The Malaysian Insider. “The price increases are not commensurate with salary increases. How are young adults going to catch up (with house prices)?”

A young adult accountant with a multinational in KL who wanted to be known as Rais said that he feels house prices have been manipulated and become prohibitive, even for professionals, and the property sector should be more socially oriented and less profit motivated.

“Imagine my generation not being able to afford a home,” he said. “If people are riled up, then yes, it can be an election issue, depending on how it is argued.”

Pavilion shopping mall in Kuala Lumpur. Cities could lose their vibrancy if the young generation have to live far away or work overseas.

One 29-year-old tuition business entrepreneur, who only wanted to give his first name of Amin, said that he finds property prices in and around the city very expensive and “beyond reach” except for Bukit Antarabangsa which had been hit by sensational landslides in the past.

He said property prices were overshadowed as an election issue in Malaysia due to other matters such as corruption but noted the similarity of complaints between Malaysians and Singaporeans over the impact of foreign buying.

“In Singapore corruption has been sorted out and now the big election issue is how to bring things back for the locals,” he told The Malaysian Insider. “I think property prices have gone up a lot in Malaysia due to foreigners. Who is Malaysia for?”

Another twenty-something multinational accountant in KL who gave his first name Patrick said that more and more of his friends have put off buying a home due to the cost.

While he managed to recently purchase a 600 plus sq ft condo about 15km away from the city centre for about RM550 per sq ft, he said that he would find it easier as a local who can fall back on his parents while other young adults may not be so lucky.

“In the coming years it will be a big issue if youth cannot afford to buy a property,” he said.

“They’ll either have to squat somewhere or work overseas to earn enough money. We need the government to be pro-active in providing good quality housing.”

He agreed with Amin however that housing as an issue has so far been overshadowed.

“We as a country have so many other issues such as finding good jobs; those are the primary issues,” he said. “The problem now is the awareness of the cost of property.”

He noted that the cost of property could lead to a generation deep in debt and questioned the demand for high-priced property.

Noting that reports put the percentage of the tax-paying public at only about 10 per cent and the taxable threshold is less than RM3,000, then it could mean either about 90 per cent of working Malaysians earn less than RM3,000 or there is a massive case of tax evasion.

“If the bulk of people earn less than RM3,000 and prices of property are so high and keep going up, that will be a big issue,” he pointed out.

Patrick also said that if property prices absorb an increasingly large percentage of a person’s income, it will lead to a lower standard of living.

“People will have to keep eating at the mamak and more and more cannot survive on one income,” he said. “There will be a lot of anxiety and it’s very scary to think about.”

Housing and Local Government Minister Datuk Chor Chee Heung told The Malaysian Insider that the fear that young people feel of being price out of the market and therefore having to buy a home quickly was “unfounded.”

“Don’t rush to buy a house now,” he advised. “Once the KL MRT is ready, there will come a time when it will be affordable for someone with five years’ experience to afford a house.”

He also said the government was in “the early stages” of forming a national housing board to build public housing in a more structured and streamlined manner.

Asked if he saw affordability of property becoming an election issue, he replied that “some politicians may use it.”

Real Estate and Developers Association (Rehda) president Datuk Michael Yam said house prices needed to be looked at holistically and suffered from cost push factors such as rising land costs and building material costs.

He also said that KL was becoming a global city and prices were going up to global levels.

“I was recently in London and saw a friend’s daughter’s new apartment in Chelsea which cost about £360,000 (RM1.8 million) before subsidy for 300 sq ft,” he told The Malaysian Insider, saying that people will have to get used to buying smaller apartments in line with trends in developed nation cities.

Yam added that landowners in KL were “asking the sky”, which pushed up the land replacement costs for developers.

He denied perception that foreigners were pushing up property prices, saying that he has statistics showing that foreign participation in Malaysia was minimal.

The Rehda chief noted the costs of social responsibility and cross-subsidies such as low cost housing requirements and Bumiputera discounts and “indirect taxation” such as cost of sewage infrastructure affected the prices of houses to the end consumer.

“Five years ago, low-cost houses cost RM52,000 but are sold at RM42,000,” he said, adding that the difference between the cost and selling prices was probably higher now.

He agreed however that KL could lose some of its economic vibrancy if young adults were forced to live in distant areas outside the city.

“The wealth of a city is in its people,” he noted.

Related site:

http://wikisabah.blogspot.com/2011/03/young-adults-can-not-afford-housing-in.html

'My generation is becoming the homeless generation’

Lee Wei Lian

Twenty-something media consultant Angela Ooi has all the right boxes ticked when it comes to the type of resident a world-class aspiring city like KL would like to attract.

She’s a university graduate and worked in respectable media company before striking out to start her own successful small business.

Yet, she finds herself unable to afford a reasonably liveable home that doesn’t require either taking out a back-breaking bank loan or moving out to a distant and bland housing estate that involves mind-numbing daily commutes. 

“My generation is slowly becoming the homeless generation or the urban sprawl generation,” said Ooi, who has had to resort to renting and feeling very sore about the supply of reasonably priced but decent housing stock.

Her concerns are shared by many young adults who are the future economic drivers of the city.

Tuition business entrepreneur Amin, 29, said property prices are now “very expensive.”

“I am looking to buy but property prices are now beyond reach,” he said.

While some developers suggested that young adults move away from the city where property is more affordable, Amin said the resulting lengthy commutes would be a waste of time and impact productivity.

“Living far away is really inefficient,” he said. “Our public transport is not the best and you’ll have to deal with disruptions such as bad weather or the bus breaking down.”

Another accountant, Patrick, who has several years of working experience with multinationals recently bought a new 600-plus sq ft one-bedroom condominium in Kota Damansara, which is located about 15km from the city centre, for approximately RM350,000 or about RM550 per sq ft (psf).

As a local however, he said the risk of buying for him is reduced as he currently saves money by staying at home with his parents, adding that if things don’t work out with the condominium, he can still fall back on his parents while other young adults may not be so lucky.

And even though he has been able to buy a condo, Patrick still feels property has become overpriced.

“Salaries have not gone up much and cannot play catch up with property prices,” he said, noting that he’ll have to commit a significant chunk of his monthly income to servicing the housing loan.

Another twenty-something accountant with a multinational, who wanted to be known only as Rais, grew up in the expensive Damansara Heights neighbourhood but even then has balked at house prices.

“Either I buy a studio apartment which is now also not cheap and is like living out of a hotel room or spend my young adult life in a car driving long commutes,” he said. “That’s not the lifestyle I want.”

Rais said he and his friends are now taking a wait-and-see attitude towards buying a home due to the “ridiculous prices.”

At a recent Real Estate Developers Association (Rehda) media briefing, some developers suggested that young adults look beyond new houses to the secondary market of older homes which they can then fix up.

Ooi pointed out however that older homes in mature neighbourhoods are still costly before even adding on the cost of renovation.

“So, even if I manage to put a 10 per cent downpayment on a RM700,000 place, which is RM70,000, how about money for replacing old pipes and wiring and furniture?”

Ooi suggested that to help overcome the problem, the government could emulate some local governments in the US which offer financial incentives such as grants to those who move into older, dilapidated areas of the city as it will help with area gentrification.

“It’ll be nice if you live upstairs in a nice cleaned-up space just above a café, that serves good coffee and kaya toast, and down the street there’s a mom and pop grocery store, that conforms to cleanliness laws, so they don’t leave rotting veges in the street that will attract rats, and maybe set up a walking neighbourhood which is viable for outdoor activities on the street,” she said.

Rehda president Datuk Michael Yam said however that gentrification in Malaysia could be more efficiently done by developers.

National House Buyers Association secretary-general Chang Kim Loong said recently that the rapid inflation of assets has put house ownership beyond the reach of young adults.

Yam told The Malaysian Insider however that property prices were a complex issue and were now largely driven by escalating land costs and rising material costs on top of the social obligations that developers have to carry out, which are then built into the prices.

He also noted that some Western countries overcome affordability issues by reserving certain housing units for essential service providers such as nurses and firefighters.

For Ooi however, all she wants is a place in the city to call home, a dream currently now frustrated.

Related site:

http://wikisabah.blogspot.com/2011/03/young-adults-can-not-afford-housing-in.html