IDEAS: Chris Yong argues that the secondary market should be a free market while 30-year leaseholds should be introduced
Just when I thought we are living in a blessed environment of low inflation, I was jolted from my senses when I read about the “Homeless Generation?” brouhaha (NST RED Aug 24) about the majority of lower and middle income earners that do not have access to affordable housing due to high prices. Wait! Low inflation and high housing prices! An oddity, isn’t it?
Anyway, price controls are government restrictions on the prices that can be charged for goods and services in the market. The intent behind these implementations is the desire to maintain the affordability of staple food and goods, to prevent price gouging during shortages and to slow inflation. Housing can be a serious social issue: when prices are too high and citizens are excluded from owning decent homes, it can cause social discontentment. That’s why most governments in the world have schemes to alleviate this problem.
Be that as it may, in the case of Malaysia, this phenomenon of price surge is not a nationwide problem. For those properties outside of Klang Valley and Penang, the market remains fairly humdrum. Some of the prices have remained stagnant for many years.
However, the picture is different in certain areas like Petaling Jaya, Bangsar, Taman Tun Dr Ismail, Subang Jaya etc. There, property prices of landed property and condominiums are experiencing an increase of 80–100 per cent over the last two years. Some of the house prices in the range of RM300,000 to RM500,000 have shot up to RM600,000 to RM1 million plus which have effectively priced out many lower/medium income earners, who find them unaffordable.
Because of these high prices, some quarters have made several suggestions to the Government to lower the prices. The Government also invites suggestions to solve the high price housing problem. Among the most common proposals is to build affordable housing.
When we talk about building affordable houses, we must talk in the context of location. There is no point building ‘affordable’ houses in, say, non-choice locations like Bukit Beruntung, Nilai, Tanjung Malim etc where there is no or little demand. Also, if you want to control the price of housing ranging from RM150,000 to RM300,000 in choice areas, the land cost has got to be relatively ‘cheaper’.
In the private sector, it’s tough to get ‘affordable housing’ land. However, the state can assist by alienating land to those designated builders. It is much cheaper to pay alienation premium than current market price of the land. There is no way you can have price control of the product when the land prices are high unless the Government provides subsidies.
Price spike within short period is not healthy: The proposals are commendable initiatives although I have different views with respect to some of them.
In particular, the proposal to restrict ‘affordable home’ owners from selling their homes within 10 years of purchase in the open market except to their next of kin or to the Government.
SPNB (Syarikat Perumahan Negara Berhad) even reportedly proposed that the property should be sold back to the Government after 10 years. Not surprisingly, there is a lot of debate on this.
In my opinion, for those who suggest these restrictions, I think they miss the point. The point is, why should we or the authority begrudge owners who own appreciating assets? Would any of you like to buy a property whose price stays depressed or stagnant until you retire?
There is nothing wrong with wealth creation through rising value. On the contrary, can you imagine a situation of wealth destruction through decreasing property prices? I think the result will be disastrous to both the economy and the banking system. As a result, I think price control at the primary market is okay for ‘affordable housing schemes’ but the secondary market should be a free market. Bear in mind, gradual capital appreciation of property of, say, 10–15 per cent per annum is healthy but price spike within a short period is not. We need to differentiate between these two.
To recap, while our priority and concern should be to ensure that ‘affordable housing schemes’ cater for the right group of people, we should not focus too much attention on the property owners’ action in the re-sell market.
The 30-year leasehold dwellings: If the authorities are still interested in capping prices of property, how about considering a shorter leasehold period, say a 30-year leasehold? I guarantee you that this type of property will be non-speculative and non-appreciative. Simply because of its short lease, nobody in their right mind would want to speculate and drive up the price of these properties. Furthermore, at the end of the 30-year period, they would need to pay a renewal premium.
Price-wise, it will be attractive — going by proportioning, the prices can be one-third compared to a similar 99-year leasehold property. That is definitely cheaper. Do you think the market will accept this product? I don’t know.
Finally, talking about measures, I think the most challenging part is to identify the causes of the price surge and applying the right measures. Already, there are two measures implemented by Bank Negara to curb high prices since early this year. Have the two measures affected property prices significantly? Well, if you ask me, the number of transactions has decreased but I am not sure about the prices coming down from the highs. I have not seen the evidence yet but maybe time will tell.
Chris Yong is principal of Rochester Properties