The Malaysian Insight

THE rising cost of land within the Klang Valley is forcing property developers to build properties above RM1 million to recoup their investments, said industry players who urged the government to offer greater incentives for the building of more affordable housing.

Instead of merely imposing a temporary freeze on approval for new luxury property developments, authorities should consider market forces as well as the roll-on effect on the economy, which depended heavily on the building and infrastructure industry, they say.

Mah Sing Group Bhd managing director Leong Hoy Kum said the cost of land in Kuala Lumpur and Selangor was driving the developers to build pricier units.

“Considering the high price of land in certain areas, it would be impractical to build properties below RM1 million,” he told The Malaysian Insight.

Leong insisted that there was still strong demand for high-end properties in selected locations in the city, and urged the government to consider reviewing the blanket freeze on approval and tcase-by-case basis. 

“We believe that properties in good locations, transit-oriented developments (TOD) and transit-adjacent-developments (TAD) will still do well.”  

Bank Negara Malaysia (BNM) recently revealed that the number of unsold residential properties is at a decade-high, and that the bulk of the unsold properties were priced above RM250,000.

Following BNM’s advice, the government imposed a temporary freeze on new approvals for luxury properties. However, last week, the government backtracked on its decision, saying instead that projects will now be assessed on a case-by-case basis.

In the first quarter of this year, unsold residential properties stood at 130,690 units, the highest in a decade. This is close to double the historical average of 72,239 units per year between 2004 and 2016, the central bank said.
 
Johor has the largest share of unsold residential units in Malaysia (27%), followed by Selangor (21%), Kuala Lumpur (14%) and Penang (8%).

BNM also revealed that from 2016 to the first quarter of the year, only 21% of new property launches were for houses priced below RM250,000.

The temporary freeze is expected to drive the prices of homes down, as it forces smaller developers to adjust the pricing for new homes and address the problem of abandoned projects, said National House Buyers Association (HBA) honorary secretary-general Chang Kim Loong.

“This freeze on luxury projects could potentially help prevent abandoned housing projects (caused by) developers (who) think that there is sufficient demand and proceeds to sell.  

“However, halfway down the road, there are not enough buyers and the developer does not have sufficient funds to complete the project.   

“The earlier buyers will all be stuck and it will be a repeat of what happened in the mid-1980s and during the Asian Financial Crisis of 1997-2000.  Even today, after 20 years to 30 years, there are house buyers still waiting for their properties to be completed,” he said. 

However, Chang said a long-term solution to the problem of rising property prices is a review of the government’s overall policy on building approvals in the Klang Valley.

He said detailed town planning was important as land was a “limited resource” in Kuala Lumpur and Selangor.

“HBA is of the opinion that there should also be a blanket freeze on all new shopping malls and office buildings in Kuala Lumpur and Selangor.  The government must carefully plan for what sort of development that should be allowed to be built as land is a limited resource,” he said.

Chang said that merely freezing approvals for luxury properties could have an adverse effect on the property developers who may choose to put their projects on hold instead of repricing their homes.

“If the developers take this route, then these developers will be forced to slow down. 

“The economy could slow down as the property and construction sector has many other supporting sub-sectors such as manufacturing, service and logistics,” he said.

Encouraging developers to adopt home ownership schemes via tax cut incentives and other means would help to reverse the threat of a ‘homeless generation,” he said.

“Together with a rent-to-own scheme, this is the best opportunity to turn back the threat of the “homeless heneration” starting to take root,” said Chang, referring to a situation where an entire generation of younger Malaysians in the lower- and middle-income segment are unable to own a home.  

“HBA is glad that government agencies such as BNM have finally also realised that this is a real and present problem which must be tackled immediately.

“HBA further applauds BNM for being bold enough to tell the truth that there is an impending housing crisis unless urgent measures are taken.” – November 30, 2017.