AFFORDABLE: HBA proposes curbs to make affordable housing a reality
During major festivals in this country, we see the authorities conduct vigorous enforcement activities on the various food items that are subject to price control. This is to prevent unscrupulous traders from exploiting the situation by increasing the prices of such items which are deemed essential items. Some traders secretly stock up such items to create artificial shortages which amounts to outright profiteering.
We often read about wayward traders being taken to court simply for failure to display prices. Whether such measures breach our free market policy may be open for debate. The bottom line is that it does curb profiteering to a certain extent. On this score, kudos to the Government.
Having said that, we would now like to refer to the present scenario in the housing arena. “Affordable housing” is now a buzzword going around. There is no denying that the price of suitable houses has now reached a crisis level where it is beyond the affordability of the average wage earners. This is a highly undesirable situation, and if left unchecked can lead to adverse and far-reaching consequences.
We will end up with a whole generation of people who either does not own their own houses and who continues to rent houses (subjecting themselves to the whims and fancies of their landlords) or who commits an excessive proportion of their household incomes towards servicing the mortgages of their houses.
Bear in mind that the Malaysian household income-to-debt ratio is among the highest in the world and that the bulk of these debts is incurred in the servicing of house mortgages. Those who rent face the risk of their landlords either raising their rentals or even evicting them.
On the other hand, those who opt to buy face a delicate and risky situation where they may get into financial trouble if events do not turn out well. Such events include the raising of interest rates by financial institutions, a drop in property prices and their incomes as well as emergence of emergencies.
Yes, house price will go up given any period of time due to natural inflationary forces. This is probably beyond the control of any party. But the recent spate of frenzied price escalation is certainly not due to natural forces. It is not due entirely to increases in costs of building materials or other construction costs as much as industry players would like to make us believe.
In the case of land costs, it is a chicken and egg situation. If house prices have been pushed up (either speculatively or naturally), it goes without saying that land owners would expect higher prices for their land.
It is also not due to shortfall of supply over demand as NAPIC (National Property Information Centre) figures showed otherwise. Rather, it is due to unbridled speculative forces. The removal (largely) of the Real Property Gains Tax (RPGT) during the economic downturn has not been reversed till today. The revision of RPGT in the 2011 Budget whereby RPGT for properties transacted within the first two years is increased to 10 per cent from the then 5 per cent is meaningless as speculators can only flip over their purchases after the properties have been completed. Most developers do not allow sub-sales before project completion (under construction) anyway.
Stronger governmental intervention: This is where we feel that stronger and more positive governmental intervention is critically required. No, we are not suggesting that houses should be subjected to price control like other commodities. What we are asking the Government to do is to alter the landscape to make it less encouraging (even not worthwhile) for speculators to continue their antics.
We have heard housing developers claim credit for having built X-million number of houses and having created immense wealth when the houses appreciate in value. We also see large numbers of speculators who reap immense profits by just buying/ booking and flipping over their purchases and reaping enormous profits. Whilst industry players have cited a host of other causes, not all are justified. In any event, the escalation of house prices is good for them as it encourages quick sales brought about by an artificial shortage.
Humanitarian aspect: On the humanitarian side, there is nothing to feel good about. These speculative profits are not real profits. In effect, these speculators are taking money from our future generations to enjoy today. Our future generations (actually in the prevailing circumstances, even the present generation as well) will suffer the effects of exorbitant house prices that have resulted in the high household income-to -debt ratio. This may be legal but it is downright immoral!
The country’s economy will be an unbalanced one because with such a large proportion of family income committed to house mortgages, a typical household will be compelled to be stingy on the other expenditures. Thus, the other industries will suffer.
Statistics have proven that the present high income-to-debt ratio is brought about primarily by house mortgages. It looks like the proverbial horses have already bolted and we are still dragging our feet in closing the barn door!
We do not see the logic when the Government is so serious about controlling the prices of essential items such as cooking oil, sugar, chicken and a host of other essential items, yet on the subject of house price it has allowed the situation to remain laissez-faire (free market). We believe that affordable houses are even more crucial than some of the price-controlled items because one can always find alternatives or reduce the intake of some of those items. But the alternatives for a roof over one’s family are the squatter areas, the shelters under our highway flyovers or the five-foot paths in front of shop houses!
Whilst 1Malaysia Housing Programme (PR1MA) is a good move (barring some of our apprehensions), it is also a typical case of treating the symptoms rather than the cause. In this case, the cause is unbridled speculative activities. We feel that it is incumbent upon the government to promptly implement serious measures to effectively curb speculative activities. A neighbouring country had as early as September 2010 introduced effective measures to discourage such activities. Even that did not stem the tide of escalating property price but it managed to bridle it to a more acceptable rate.
Three curbs to speculation: We urge the government to take immediate proactive steps to curb the uncontrolled escalation of property prices. The three (3) pertinent instruments amongst others that can be employed are as follows (See Tables 1, 2, 3, 4 and 5):
Bulk of these household debt is incurred in the servicing of house mortgages.
Speculative profits are not real profits.