Change in the ecosystem needed?


A KRI report says the housing market continues to be “seriously unaffordable.”

KUALA LUMPUR: Any move away from the present sell-then-build (STB) model to a build-then-sell (BTS) system for the housing market will have both upsides and downsides.

A BTS system has its benefits to the end consumer ensuring adequate protection and completion of projects by developers but it may also mean an increase in property prices, a forum was told yesterday.

This is as property prices are still being deemed unaffordable for the average Malaysian. According to Khazanah Research Institute (KRI) report on “The Financialisation of our Lives: Values and Trade-offs”, the housing market continues to be “seriously unaffordable.”

An adoption of the BTS model will also need to see industry players rethink and change the way property projects are carried out in the country. Having said that, the STB model has had its successes.

An earlier report by KRI on Rethinking Housing noted that the STB model came at a time when there was a need to rapidly ramp up the housing stock in Malaysia.

“So this STB model was quite successful in meeting the changing demographic needs of the country,” said Bank Negara director of financial surveillance Daniel Chin at a KRI forum titled “The Financialisation and Commodification of our Homes”, yesterday.

“If you look at the proportion of home ownership in Malaysia, it is now very high at 76%, which is higher than many countries in the region, the United Kingdom and the United States as well. It has achieved good outcomes for the majority of people.

“This also does not mean we shouldn’t refine this concept. I would personally be open to exploring how else we can improve – what other models we can adopt and if the BTS system is a viable option here,” Chin added.

KRI’s director of research Suraya Ismail said a move to the BTS model will see house buyers not bearing commercial and construction risks that comes with a property development.

The director-general of the National Housing Department Datuk N. Jayaselan said it is important to look at the whole structure of how the BTS model works in other countries before going into it.

Jayaselan said at the moment, the current structure or ecosystem when implementing property projects is still unprepared for the BTS model.

“If you want to adopt the BTS system, nobody looks at the whole structure of how it works. Nobody discusses this issue.

“Similar to what is happening in Singapore and Australia – if 40 stories are built, once the first 10 is ready then the prospective owners can move in while the next 10 floors are being built. In this country, this structure is not there,” Jayaselan said.

“When we throw in this idea, we must also look at how the structure is designed to ensure it can be implemented. This includes the Fire and Rescue Department, local authorities etc. These type of methodologies aren’t there,” he added.

He noted the BTS idea would require all stakeholders including the banking industry to change the way things are done to effect a broader change in the ecosystem.

“For a long lasting impact, the whole ecosystem has to be changed and this involves many stakeholders. It is a tall order and we have to look at it in totality and decide whether we want to go in this direction or not. “If so, the developers would need to look at costs since they would have to own the whole structure for the duration of the project,” Jayaselan said.

“If you ask a developer to bear the (holding) costs for five years for a 60-storey building then the next question to ask is why should they build a 60-storey since you can only afford a 10-storey – so the question of efficiency also comes in,” he added.

Meanwhile, Real Estate And Housing Developers’ Association Malaysia’s president Datuk Ho Hon Sang suggested a parallel system of BTS and STB be introduced in Malaysia so consumers can choose which is best for them.

Ho also said a BTS model would entail higher housing costs of a house, which would be reflected in the selling price of the property.

“For a BTS model, bank financing needs to increase by an additional 50% to 60% of the development costs. This is a huge sum of money which means the exposure of the bank to developers will be much higher than STB. In this respect there may also be other regulations, and this impact will lead to higher costs which will lead to higher prices of houses,” Ho said.

He also noted that with the BTS, it is possible the number of new property launches will drop compared with building under the STB model.

“Now the developer can probably do 10 launches. Under BTS, our findings indicate they can probably only do six, which is a reduction of 40% of launches. It means the supply to the market will be affected. If supply drops and demand is still there, then selling prices of houses will go up,” Ho said.

According to KRI, the median house price increased at a compounded annual growth rate (CAGR) of 23% from RM170,000 to RM270,000 between 2012 and 2014.

“At the same time, median household incomes grew significantly slower at a CAGR of 11.7%, less than half the rate of increase in house prices,” it noted.

“The signal of a well-functioning housing market is when most prospective buyers can afford to buy a house irrespective of their income distribution segment. This is best reflected when the median price of the housing market is three times the median gross annual household income,” it added.

KRI said that on average, 49% of the population can afford houses within the price range of RM100,000 to RM400,000 at the national level, whilst 25% of the population should be placed under the social agenda (a case for government allocation) for shelter.

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