The baffling prices of houses
By Himanshu Bhatt, The Sun
IT IS a fundamental fact of economics in any market sector that when the price of a commodity goes up it is because, all things being equal, the supply of the item is too small to meet a much bigger demand.
There is, however, one sector in Malaysia that seems to have defied this textbook logic in a bewildering way. For there are probably few mature economies in the world where the housing sector has been so overpriced for their own people as in Malaysia.
According to the Population and Housing Census, there have actually been more housing units than households in the country. In 2000, for example, the vacancy rate in terms of unoccupied housing units for all of Malaysia was 15.6% – with most units being newly completed in urban areas and put up for sale or rent.
What this effectively indicated was that much of the property was being used for speculative and investment purposes, causing the house prices to be pushed up.
The average house price in Kuala Lumpur was RM390,000 – almost six times the average household income – in 2009. Prices were even worse on Penang Island, averaging about RM540,000 – or eight times the average household income – according to the Socio-Economic and Environmental Research Institute. What these figures basically point to is a glaring mismatch between the demand and supply of houses.
“The majority of Malaysians want affordable homes, but developers are supplying houses that they cannot afford,” S. M. Mohamed Idris, president of the Consumers Association of Penang, said. “Developers prefer to cater to investors and speculators who buy to rent, or to flip over and make money.”
It is a known fact that developers give preferences and reserve the best units for clients who buy multiple units even before a project is officially launched. “Ordinary house buyers then have to queue and accept less desirable units or buy them from the investors usually at higher prices. Developers even go overseas to aggressively market property as they are still cheap by international standards,” Idris said.
Seeing such an absurd situation where property prices have gone beyond the reach of most locals, the Penang State Assembly approved an enactment in November last year to establish a state Housing Board. A key focus of the board is to promote and spawn the development of affordable housing projects by the private sector.
In particular the Penang government is looking at having sufficient housing units, both landed property as well as apartments, that would cost below RM350,000 each.
At about the same time, the federal government announced in its 2011 Budget a My First House Scheme where first-time house buyers with a family income of less than RM3,000 a month need not place a downpayment on their first home when they purchase houses priced below RM220,000.
The scheme may help to lower housing prices in some areas and make homes more affordable especially for young, start-up families. However, not everyone looking towards buying a home in urban areas would really benefit. This is because property prices have been increasing over the years, so much so that link houses on Penang island are being sold at above RM600,000 each while condominiums are above RM400,000.
The Real Estate and Housing Developers Association Penang branch chairman Datuk Jerry Chan said that though the federal scheme may spur some developers to come up with housing projects with units at less than RM220,000 each, prices on the island and near the city are still very much dependent on market demand.
It is possible that the scheme, when teamed with the state government’s recent revision of plot-ratio and current low-interest rates, would benefit young professionals just coming out to work and looking to own their first homes. But the greater over-arching problem of a dearth of affordable, comfortably-spaced houses for the general populace is likely to remain.
There have been some other government measures, such as limiting buyers of a third property to a 70% loan to value ratio, but policies like this have been deemed inadequate to curb excessive investment and speculation. There have also been calls for the government to increase property gains tax on short-term transactions, and even to stop the sale of landed property to foreigners.
But until and unless there is a stronger shift in the consciousness of the government and the private sector for suitable housing catered to the purse strings of our average urban citizen, the reality of the market will show little sign of prices being finally stopped from spiralling out of control.
