Will More Affordable Homes Raise the Overhang Unintentionally?
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The new government’s enthusiasm to target the construction of 1 million affordable homes in ten years is laudable, but would these meet the needs of people?
The current government’s approach to affordable housing has been to build more public housing through PRIMA and other government agencies as well as to impose quotas that require developers to build low-cost housing.
Overhang of Malaysian Residential Properties
While it has been apparent that there is an overhang of housing priced below MYR 300,000, the decision by the government to take over the responsibility to build may not necessarily resolve the current issues and needs of first-time house buyers. PRIMA has had its share of challenges while developers have been blamed for the construction of low-cost housing in remote places or places that lack connectivity, subsequently attracting poor take-up.
Should the imposition of a quota system rather than the developers be to blame for this? Rather than the government taking up the challenge of building affordable housing, a change in policy from the quota system towards providing tax incentives for affordable and low-cost housing, could incentivise developers to build coupled with collaborative methods to resolve transportation and connectivity be the answer.
Current housing overhang is mostly in the affordable segment
Closer examination of the latest statistics from National Property Information Centre (NAPIC) shows that the addition of new supply in this price range is against the backdrop of a rising overhang in the affordable price range priced below MYR 300,000 based on latest statistics from the NAPIC.
This overhang of properties priced below MYR 300,000 form the biggest slice (31% to 52%) of the overhang. The overhang, which is defined as unsold units that have been launched for more than nine months, runs across all the three categories of completed, under construction and those launched but not constructed.
Overhang Properties with the Most Affected Price Range
Establish the market demand
The challenge with building more affordable housing is that the construction of new supply without establishing the demand may exacerbate the current overhang situation. For example, despite the public outcry over a lack of affordable housing in Kuala Lumpur, the city had 8,008, the most unsold units that were not constructed, comprising largely flats and apartments in Q1 of 2019.
Looking at the profile of property buyers at the recent HOC, there appears to be a shift in demand towards the MYR 300,000 to MYR 500,000. A recent survey undertaken by the Real Estate & Housing Developers’ Association (REHDA) Malaysia of 1,747 visitors at the HOC Expo seems to indicate that this is so, with 46% of respondents mentioning that they are interested in this price category. Only 20% of the property buyers were interested in the price range of less than MYR 300,000.
Home Ownership Campaign Expo Survey of Property Budget
Trend points to a shift towards a higher price range
This purchasing behaviour seems to reverberate throughout the country and appears aligned with statistics from NAPIC. The trend of properties purchased in Malaysia shows that transactions below the MYR 250,000 price range have gradually shrunk; whereas those in the higher price range have risen over the past seven years.
Value (MYR millions) of Malaysian Residential Property Transacted by Price Range
While the government’s intentions are noble, the agencies undertaking the affordable housing projects should conduct a market study to find out the appropriate types of housing, size of units, and prices for specific locations, as well as determine feasibility before starting, to ensure a good uptake in demand for properties launched in those areas. This approach may take longer as the agency has to reverse its implementation method of using a bottom-up approach as real estate is very much location-centric.
Housing targets should, therefore, be more flexible as locations with good infrastructure and within reasonable costs are not easy to find. The government may wish to consider a more holistic approach and allow the private sector to be involved in supplying the demand for all the different house price segments. Some countries, for instance, have provided tax incentives for building low-cost or affordable housing so that the private sector, with the experience and cost advantages, can build them.
Certainly, the government has an important role to play and that includes investing in infrastructure for the masses. The government can integrate affordable housing into urban and transport planning to ensure there are some means of connectivity for future residents. It can also ensure that time-sensitive data reflects the current and future housing stock as it empowers the private sector to respond correctly to the market.