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Monday, October 31, 2016

PR1MA Housing : Budget Analysis By Our Editorial Consultant

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The following is a series of comments on the Budget by our Editorial Consultant.  The first part is about the PR1MA houses.

Lets discuss PRIMA.  To date, 12,000 PR1MA units have been booked worth RM3.3 billion.  This averages out to about RM275,000 per house. But PM never mentioned where are these PR1MA houses.  The bookings are a mystery. No one seems to know where these 12,000 PR1MA houses priced at RM275,000 are going to be built. 

Because the cost of land is so high, it is going to be very difficult to build a house with three rooms in the Klang Valley or Selangor for RM275,000 per unit. Maybe they will build very small apartments (750 square feet) with just two bedrooms and one bathroom.  In the long term small apartments will create social problems like sumbang mahram, child abuse, teenagers running away from crowded homes and gangsterism.  

If they want cheaper land  to build cheap houses maybe they can build apartments on top of Gunung Ledang, Gunung Jerai or Gunung Tahan. Or they can try Gua Musang. It is not going to happen in the urban areas mentioned above.

If the private sector developers have firm bookings for 12,000 housing units  the developers will work day and night to deliver the 12,000 units.  But not PR1MA. Although they say they have 12,000 bookings, and also with another 1.6 million civil servants and tens of thousands more employees in the GLCs as potential buyers, PR1MA still cannot deliver any of the 12,000 homes.  PR1MA seems to be taking their own sweet time to deliver the 12,000 units. 

One of the reasons could be the PR1MA staff know they will not be sacked even if they do not deliver. They will still get their salaries at the end of the month even if no work is being done.   PRIMA staff are all over the country trying to start projects but waste time with meetings instead of working.  

But the real reason could be something else. Rumour is that the Government has failed to honour the promised allocations to PR1MA to buy land and begin construction of the houses. 

The most urgent demand for PR1MA housing is inside the Klang Valley and Selangor. Due to very high land costs in Klang Valley, Selangor, Penang and Johor Bharu it will be very difficult  for PR1MA to build comfortable homes at medium costs.  RM275,000 per unit for a decent sized home is only feasible outside these major urban areas.  But there is less demand for houses on top of Gunung Tahan.

So those 12,000 people who have made those bookings with PR1MA can wait patiently.  And as more time passes and more delays occur the land prices will keep going up. This makes PR1MA's promise of building affordable homes even more difficult  to deliver.

Then we hear of the new special loans.  Those earning RM3,000 per month can borrow more than RM295,000 to buy houses.  But these are the same group of people who are eligible for BRIM to help them face the high cost of living in the urban areas.  These are the urban poor. Surely they have no savings to pay the down payment for the houses and not enough money for their own needs. 

Many legitimate business are complaining that banks are not lending to them and in fact, the banks are recalling loans because their NPLs are on the rise.  This is the real situation. The banks will certainly not lend RM295,000 to poor people who fall in the BRIM category.

Banks usually calculate a loan amount whereby the monthly instalment does not exceed 1/3 of your monthly income.   After deducting EPF, a person earning RM3000 per month actually takes home only about  RM2,700.  His monthly instalment payment capacity is therefore about RM900  (1/3 of income).

Using a 5% interest rate or 5% 'Islamic' profit rate per year, a 25 year financing of RM295,000 will require a monthly instalment payment of about RM1,700. This means your monthly income should be in the RM5000 range.
So it will be difficult for the RM3000 income group to qualify for the RM295,000 loans.  If they have to pay RM1,700 monthly instalments, they will only have about RM1,000 left to meet their household expenses.   This will become very high risk type of lending.  Even the crazy Bank Bumiputra  that went bust long ago would have rejected this type of risky lending. 

Our financial system also is not in good shape. Bank Negara now announces our reserves position  in Ringgit Malaysia and no more in US Dollars.  This is a cheap trick to fool simple people like the new 2nd Finance Minister.  Because the Ringgit is falling in value, it appears that our foreign reserves are increasing.  Actually our foreign reserves are shrinking, if they are calculated using US Dollars.   Our reserves are now below US$100 billion.  So a weaker Ringgit is good for Bank Negara's new foreign reserve calculation method.  It makes MO1 happy.

Most rakyat can't afford to buy houses or apartments as they are too expensive.  The Government has no idea how to control the price of houses.   The  ministers are not really bothered because they are too busy defending MO1 and his wrongdoings.

The real situation is that the Government  just makes empty promises. PR1MA has been mentioned in the Budget for years now. Yet not a single home has been built and delivered by PR1MA.  

So what happened to all those Budget allocations to PR1MA over all these years?  Have they been spent? If yes, where are the houses?   If the money allocated has not been spent, then why give PR1MA new allocations every year? What is going on?

So it is nothing but promises. 7 million people are supposed to qualify for BR1M. There are many people who qualify for BR1M who are finding out that their names are not on the list.   So it is not 7 million people.  It is just statements and promises.

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