Owning affordable homes: Do we increase wages or reduce cost?

Tan Sri Abdul Rahim Abdul Rahman, executive chairman of Rahim & Co, noted that income levels are currently not in tandem with the increase in property prices and said developers will have to cater for the demand for cheaper homes. — Picture by KE Ooi
Tan Sri Abdul Rahim Abdul Rahman, executive chairman of Rahim & Co, noted that income levels are currently not in tandem with the increase in property prices and said developers will have to cater for the demand for cheaper homes. — Picture by KE Ooi

KUALA LUMPUR, Feb 13 ― The solution to Malaysians being unable to afford their own homes may lie beyond growing their income levels and instead involve helping property developers bring down their cost, a property consultancy firm has said.

Choy Yue Kwong, director of Rahim & Co's Petaling Jaya office, said boosting Malaysians' salaries would have to be tied in to the process of increasing productivity.

“I think in the short-term, very difficult to have a higher income level, for that you need higher productivity level, that will go through a process that will take some time,” he told reporters yesterday at the launch of Rahim & Co's research publication which reviewed the property market for 2017/ 2018.

He mooted the solution of reducing house prices by cutting down the construction cost, further proposing various measures including having the government release more land for development.

There should also be a reduction in the bureaucratic measures required and time taken for a developer to obtain approvals for a project, as well as reducing compliance costs such as development charges and land conversion premiums, he said.

He indicated that the developers' adoption of the Industrialised Building System (IBS) that can help lower costs has been slow, noting: “It's a chicken and egg situation for a lot of developers who have to put in a lot of startup cost, the IBS programme, they need land, they need equipment.”

“I think overall, the government, both sides of the equation should be looked at, one is the income, the other one is the lower cost,” he said.

Choy's proposals were similar to those in the Real Estate and Housing Developers Association's (Rehda) wishlist last year for Budget 2018.

Rehda had proposed various measures to increase affordable housing supply including having the government identify its land for such purpose, and also to have the government reduce developers' cost of doing business and for private utility firms to not impose capital contribution charges on developers.

Rehda had in its wishlist identified the challenges that prevent developers from adopting the IBS system, including lack of suppliers for the IBS components, lack skilled workers to operate the system and lack of economies of scale.

Among Rehda's proposals to spur the adoption of IBS by developers are government funds to promote it and for small and medium industries to create a supply of IBS materials, as well as having the government adopt IBS construction methods for its own projects to ensure economies of scale with lower IBS component costs.

Rahim & Co research head Sulaiman Akhmady Mohd Saheh illustrated how income level growth can be easily outpaced by the growth in house prices, noting: “The property price is on a higher base figure, so five per cent increase on RM500,000 is much bigger than 10 per cent increase on a RM1,000”.

Demand for affordable homes

Tan Sri Abdul Rahim Abdul Rahman, executive chairman of Rahim & Co, also noted that income levels are currently not in tandem with the increase in property prices and said developers will have to cater for the demand for cheaper homes.

“I think developers have no choice. The developers must develop more affordable housing because if they continue to develop high-end and there's no demand, they are going to face financial problems later on,” he told reporters.

Describing the price range for affordable housing in the Klang Valley as around RM500,000, Abdul Rahim said there was still “high demand” for such properties.

This is unlike high-end residential units, which has been relatively soft, with actual transacted prices having a -10 per cent correction in the past 18 to 24 months, according to Rahim & Co.

The real estate consultancy firm said it expects to see more new housing projects coming up at affordable prices of up to RM500,000 within the Klang Valley or lesser for other less urbanised locations.

“Competition is expected to intensify with many developers shifting their focus within this segment,” it said in its press release, having noted that houses priced within the RM250,000 to RM500,000 price range was performing well in the market.

Rahim & Co predicted the property market to be flat and stable this year as consumers currently having a wait-and-see attitude, further saying that the 14th general election that must be held this year would spark

“Looking forward, 2018 will be yet another challenging year for our property market but many are hoping that the results of the forthcoming General Election would give a firmer direction for the nation hence reigniting the momentum in the property sector,” it said in a press release yesterday.

When asked about possible election goodies for the property market, Abdul Rahim said he believed the government's efforts were not restricted to the property market alone, but added: “I think the government has got to really look into increasing more affordable housing at the right places in order to get the right people to buy.”

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