07 September 2012
| last updated at 04:30PM
COVER STORY: Transport woes affect affordability
PRIORITISE: Gavin Tee, founder and President of SwhengTee International Real Estate Investors Club shares his thoughts on resolving the issues plaguing the property industry
Prices are not expensive: Are houses expensive? No, because “expensive” does not mean unaffordable. Only very few selected prime areas are expensive. The main reason why young people can’t afford houses is because they spend 30–40 per cent of their income on transportation. This includes the car loan instalment, petrol, toll and parking. In most cases, the expenses per month for cars and houses are almost the same which is not logical because expenses for houses are supposed to be more expensive than transportation as is the case in most other countries.
In short, housing and transportation are closely linked. Therefore, the government should focus on making transportation cheaper. Once transportation is cheaper, houses then will become more affordable as there will be more disposable income to put into housing expenses.
To make transportation cheaper, the government could: Reduce car prices. Taxes and duties are too high, even for our local Proton.
Public transportation such as MRT or LRT are supposed to be built to take care of working class people. A lot of people cannot afford to stay out of town simply because there is no public transportation. That’s why prices in the city centre increased because the supply from the outskirts is not in demand. If there is MRT from Kajang, for example, and the ticket price must not be too high, then prices can be lower, say RM200K. There would then be a lot of choices.
The fact is the lack of good public transportation is reducing choices for people in terms of location of their houses. Malaysia still has a lot of land and some land prices are still very cheap, for example, you can still get a house in Rawang at RM80K. Some estimates say properties below RM400K comprise 90 per cent of all residential properties in Malaysia.
No doubt our country is developing but our transportation has not kept up with the development. In developed countries, transportation comprises a small fraction of an average person’s expenses compared to housing.
In general, Malaysian property prices are still low and slow-moving. When a country globalises to world class standards, prices would have to adjust on par with that kind of level in this region. As it is, our prices are even lower than Bangkok and Jakarta.
Relax the secondary market: The tightening up of loan financing doesn’t hit so much the primary market but is killing the secondary market. So the government has to relax the policy for the secondary market. The secondary market is also afflicted with a valuation problem as it is difficult to get updated information on the latest transactions. Furthermore, parties involved in a sub-sale transaction have to undergo a more complicated sales procedure unlike a direct purchase from developer. Most of the supply from the primary market was in the last three years and now is the time when they are completed resulting in potentially more sub-sale transactions now.
Rental option: If a person’s income is not fixed or they cannot afford it, then they have the option to rent. Rental rate is generally low, often lower than the bank loan interest rate of 4.5 per cent. Owning a house is a long-term commitment and can incur a lot of costs so we should not force poor people to own a house just because we think that everyone must own a house. Having said that, there isn’t a lot of homeless people in Malaysia because there is still a lot of cheap rental property.
Relax foreign ownership: I don’t think increasing the minimum purchase price for foreigners to RM1 mil is a solution because it would create a lot of loopholes such as inflating the price to over RM1 million by providing furnishings etc. Developers can come up with all kinds of packages to make the property cost over RM1 mil. Prices are not determined by value but by size for example, one block of low cost houses can cost more than RM1 mil and a big kampong house can cost more than RM1 million but these properties are not targeted at foreigners.
The government should not flip flop on policies relating to foreign ownership because we are in the process of becoming a world class city. I would go as far as suggesting that urbanised areas should not have any restrictions on foreign ownership at all.
If we want to restrict foreign ownership, it is more useful to apply zoning restrictions and taxation of properties. Some areas in Melaka and Medini in Iskandar do not have any restrictions on foreign ownership and this is good. Any restriction will make our property market unattractive to foreigners who have plenty of choices in this region, for example, Thailand, Vietnam and Jakarta. Why make us less competitive?