Impose moratorium on construction of high-cost homes in Budget 2025

 

From Ashraf Abdullah

For some years now, Malaysia has witnessed a troubling trend in its housing market: an oversupply of high-cost houses juxtaposed with a glaring shortage of affordable homes.

This disparity has left many Malaysians struggling to achieve their dream of homeownership.

At the same time, a high number of properties remain unsold, creating a ripple effect that has had a negative impact not only on the housing market but also the broader economy.

For instance, there are many high rise luxury condominiums and houses everywhere that remain vacant or are still under construction.

To address this issue the government, when presenting Budget 2025 in October, must impose an indefinite moratorium on the construction of high-end houses and compel developers to build affordable homes.

As of the second quarter of 2023, there already were 26,286 unsold residential properties, mostly priced above RM500,000 each for a total value of RM18.3 billion.

The number would have risen significantly by now and likely continue to escalate.

This oversupply is driven by several factors. Firstly, developers have focused on high-margin luxury projects to maximise profits, at the expense of affordable housing.

Secondly, there has been a mismatch between supply and demand, with more emphasis on luxury homes than there are buyers who can afford them.

Bad for the economy

The high number of unsold properties has far-reaching implications for the Malaysian economy.

An oversupply of residential properties can lead to:

• Depressed prices: When there are more houses than buyers, property prices tend to stagnate or even decline. This can erode the value of properties, hurting homeowners and investors alike.
• Financial strain on developers: Developers with large inventories of unsold homes face financial difficulties, which can lead to project delays, defaults and even bankruptcy. This affects the broader construction industry and related sectors.
• Banking sector risks: A high level of unsold properties can lead to an increase in non-performing loans (NPLs) as developers struggle to service their debts. This can strain the banking sector and lead to tighter credit conditions.
• Economic slowdown: The construction and real estate sectors are significant contributors to Malaysia’s GDP. A slowdown in these sectors can have a ripple effect on the overall economy, affecting employment and economic growth. Investors may become wary of investing in the property market, leading to reduced foreign and domestic investment in real estate.

The way out

How does this affect the rakyat?

The fact is, many Malaysians still struggle to buy a home. Those that are available are beyond their reach, so the housing affordability crisis remains.

Given the current situation, a moratorium on the construction of more high-cost houses is prudent.

It will enable the market to absorb the existing inventory, ensuring that property prices not only stabilise but also stop declining.

A moratorium on high-cost properties will be an incentive for developers to focus only on affordable housing projects to meet the significant demand for such homes among Malaysians.

It can help to mitigate the financial risks associated with an oversupply in the housing market.

Overall, it can ensure that the real estate sector and the broader economy remain healthy.

A shift towards affordable housing can promote more sustainable urban development by ensuring that such projects are aligned with the needs of the population. It also enhances social stability and well-being.

Developers, driven by the promise of higher profits, have focused mostly on luxury and high-end properties.

It is time they realign their goals to be in line with the needs of the local population by investing in affordable housing projects.

Contrary to popular belief, building affordable homes can be economically viable.

The high demand alone will enable developers to achieve significant sales velocity, thus ensuring steady cash flow.

Government incentives and subsidies to promote affordable housing can further enhance profitability.

By tapping into this market, developers can not only diversify their portfolios but also mitigate risks associated with the oversupply of luxury properties.

By prioritising affordable homes, developers also ensure sustainable and inclusive growth for the nation.

Bigger role for developers

It is time for housing developers in Malaysia to embrace this change and play their part in building a future where homeownership is within reach for all Malaysians.

Developers must recognise their role in society beyond mere profit generation.

Housing is a fundamental need, and by addressing the affordability crisis, developers can contribute to social stability and community well-being.

Embracing corporate social responsibility by prioritising affordable housing can also enhance a developer’s reputation and foster goodwill with the public and government stakeholders.

While a moratorium addresses the oversupply issue, it should be part of a broader strategy to promote affordable housing.

This includes measures such as subsidies for first-time homebuyers, incentives for developers of affordable housing and policies that facilitate access to home financing.

Admittedly a moratorium is not a silver bullet, but it is a necessary step towards rebalancing the housing market and promoting economic stability.

By taking decisive action now, the government can lay the foundation for a more sustainable and inclusive real estate sector, benefiting current and future generations of Malaysians. - FMT

Ashraf Abdullah is a former group managing editor of Media Prima TV Networks.

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.