Why houses are out the reach of many Malaysians?

A QUESTION OF BUSINESS | Housing is a major social requirement and any government worth its salt has an obligation to provide its citizens at all levels a decent roof over their heads with all basic amenities and reasonable comfort levels.

It is something which cannot be left to the vagaries of the marketplace and the capriciousness of supply and demand but needs to be controlled and structured by appropriate government policies to ensure all sectors of the public have access to housing.

When a government fails to do that, especially when Malaysia started from a high-income base whereby it had the second highest per capita income after Japan in Asia at one time and where there is an abundance of land, it has without doubt failed its people.

There are just two main aspects to this. One, the rate at which household incomes increase must be faster than the rate of increase of house prices, otherwise the less fortunate among us are quickly sidelined in the race to buy houses.

Second, there has to be a push to produce houses which are cheap enough for all sectors of the population to buy and yet be spacious and decent enough at the same time. The only way to do that is to have some kind of “people housing” which caters to all levels but the richest.

Houses, along with other forms of property, are one major class of assets which includes amongst others shares and bonds, to which excess cash is channelled to become a store of value while providing a return on assets especially when interest rates are low.

Over the last 10 years, the world has been flushed with liquidity as central banks resorted more or less to printing money to ease financial crises, leaving much cash without a home to go to. A lot of cash ended up inflating asset values, including those of property.

Also, consider this: some one percent of the world's population controls 50 percent of its wealth. These people literally have so much money they do not know what to do with it.

They, therefore, put it in all kinds of assets, including property, raising the prices of many of these to astronomical levels putting them beyond the reach of the ordinary person.

A similar situation of wealth disparity also happens in Malaysia which means there are many rich people here who can afford to own two or three or even 20 or more of properties each.

This crowds out the market for the other 99 percent who own the remaining 50 percent of wealth. Under such circumstances, controlling the market to keep prices down is the only way to provide decent affordable housing.

Considering the preceding, here are some measures the government should take to reduce relative house prices:

1. Set up a central agency to control the low-cost and medium-cost housing market. This is a measure which has been proposed by no less than the central bank, Bank Negara Malaysia (BNM) in its Economic Bulletin for the last quarter of last year.

The example that comes to mind is the Housing Development Board of Singapore which builds houses, sells them according to strict guidelines and controls the prices at which they are resold.

We won’t go into the mechanics but suffice to say it has succeeded very well in Singapore.

However, this is going to be difficult to do with states - land is a state matter - in opposition control in Malaysia but if the government can come up with good schemes, I don’t see why the state governments should oppose them. 

2. Disallow the purchase of houses and residential units of any type by foreigners. If you allow foreigners to buy houses in Malaysia, the demand comes from all over the world, which as we saw has plenty of excess money.

Even if you say only those houses which cost over RM1 million are affected, you can’t deny that valuable resources are diverted to high-end properties much of which remains empty, a criminal waste of a scarce resource.

There is a mismatch in property demand in Malaysia with excess high-end properties and insufficient affordable homes, as BNM pointed out previously.

Even in Singapore, there is a lot of public angst against the government because the best properties are available only to the extremely rich.

3. Reduce the disparity of income between the rich and the poor. The first thing to do is to recognise the value of labour and allow those engaged in menial occupations a higher wage, instead of systematically depressing wages by bringing in labour from overseas.

Only if the government stops the import of cheap labour will there be greater automation and greater productivity. Example? Look at how developers use cheap labour from overseas and exploit them to build houses brick-by-brick in this day and age.

4. Allow purchase of houses with a 10 percent deposit, the rest be coming due on completion. Currently, most developers require a deposit plus progressive payments.

This is done via a loan arrangement with the bank which releases the amounts to developers based on percentage completion. This means interest payments become due even before the house is ready.

It also means the buyer bears the risk of non-delivery - there are tens of thousands of abandoned projects throughout the country. In that event, buyers have to pay loan instalments for a non-existent house!

5. Have open tenders for land allocation to developers and also have conditions for conversion. This will reduce any hanky-panky in terms of land allocation and conversion.

Many developers acquire agricultural land for a pittance and convert them to residential and other use, overnight making many hundreds of millions from the process.

Such conversions should come with conditions tied to house sales and composition to reduce profiteering. Open tenders for land allocations can come with conditions for social housing development as well.

That housing development continues in such a haphazard way and that prices continue to rise way beyond income increases reflects a failure of government policy which is yet to be corrected.

The longer the government takes to sort these problems out, the more serious it is going to become and the more difficult to solve.

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P GUNASEGARAM says you need to have a house before you can have a home. E-mail him at: t.p.guna@gmail.com. -Mkini