Budget 2016: Progressive Or Regressive?

Budget 2016: Progressive Or Regressive?

iProperty.com asked some experts to discuss the effects from the policies drawn up by the recent Budget. These are the questions posed to them:

 

  1. Was the Budget 2016 satisfactory in addressing the current housing issues? In your opinion, what more should have been done?
  2. Are the additional 175,000 affordable homes and the 5,000 units of PR1MA & PPA1M to be built in 10 locations near LRT and monorail stations sufficient to cater to the growing need of affordable housing?
  3. Will the RM200 million allocated for First House Deposit Financing Scheme be enough to assist first time house buyers especially Gen-Y? If no, please state reason(s).
  4. Will the allocated RM1.4 billion to improve roads around the country be efficient in making suburban townships more appealing?


1. In my opinion, what was on everyone’s wish list – DIBS for first time home buyers and reduction of RPGT among others which did not crystallise. This is expected as the existing cooling measures have been quite effective in curbing the speculative activities which have been spiralling since 2008.

In short, the goodies for property industry were not forthcoming. In view of the lack of these goodies, the private sectors have to strategize and take it upon themselves to ignite the housing industry. I believe, we still lack foreign investment into our housing industry.

We are still behind Singapore and Australia. Recently, I have seen a surge of foreigners showing a great deal of interest on properties in Singapore, Australia, Cambodia, Japan and even The Philippines.

Desperate times calls for desperate measures. If our local consumption such as the local buyers’ sentiment in property purchase is waning, the government should improvise on existing incentives to attract foreign direct investments (FDIs) via property investments. This will enable developers to stay afloat along with foreign buyers in trying times. The Budget 2016 should have considered this aspect and offer more investor friendly incentives to boost FDIs.

 

2. It is insufficient as there is still a strong migration from low to medium-low income households in different states into Klang Valley. The allocations will be insufficient to cater to existing and future demands. Penang has witnessed quite a number of big multinational companies closing down and resulting in unemployment. Many may be hard-pressed to migrate down to Klang Valley in search for greener pastures and housing will still be an issue.

Affordable housing  is meant for low to medium – income households, but currently we are witnessing medium-income households looking into affordable housing, which is sad.

 

3. No, because based on estimated forecast, at most it will only benefit around 30,000 house buyers and this demand will be swelling in great numbers. At least some will benefit from it.

The key to a successful first house deposit financing scheme is financing. If the mechanism and manner by which financing is organised for house buyers are not effectively executed, many of the applicants will not benefit from this scheme.

The government should set a target for both foreign and domestic commercial banks as well as set aside a funding scheme to finance some of the units. Failure to do should result in some form of penalty, just like in the old days where Bank Negara will set certain allocations for banks to meet quota on low cost financing.

 

4. Yes it will. The key to sustainability of any townships or neighbourhoods is all about accessibility and connectivity. When these two factors are made easy, inhabitants will likely to grow and so does the value of properties.

1. Housing issues are not properly addressed given that affordable housing has been a prominent feature in the recent Budget. The measures introduced so far in housing the nation are at best stop-gap and superficial. If the government is serious about its housing agenda, a long term and sustainable programme must be introduced.

We have been talking about affordable housing for years and yet we do not even have a common definition of what is the level of affordability. Given that the income level differs from location to location, we need some workable discrimination to ensure the most deserving gets housing.

The “friendly” competition between the Federal government and the various State governments in pushing their very own schemes of affordable housing is a clear sign that there is no concerted effort in addressing this issue.

Acknowledging that the Federal government would have challenges in this agenda given that land is constitutionally a state matter, the Federal government can certainly do better with the fiscal policy that is directly under its control.

Permitting the DIBS, a new Employee Provident Fund (EPF) funded housing scheme, a friendlier lending policy for the first time house buyers as well as offering tax incentives for housing developers involving in the building first homes should all be welcomed.

 

2. I think the problem is not entirely on the quantity of affordable homes but rather which person fits the eligibility criteria to purchase the affordable house.

While affordable homes are available to those with income between RM2,500 and RM7,500,
middle-income households will find themselves stuck between the two categories. They are neither qualified for low cost homes nor able to own affordable homes under the schemes.

Besides paying for the housing, house buyers need to pay for other additional expenses such as fee for sale and purchase agreement, stamp duty, maintenance fee, renovation cost, among others. The houses provided by PR1MA & PPA1M may be cheaper than those provided by developers but the government has failed to see the bigger picture on what the house buyers need to pay for besides the housing price.

I would like to stress the point that affordable housing is not only necessary for low-income households but it is also important to middle-income households when they represent a large population in the country.

 

3. Although payment for deposit has always been the biggest barrier to house entries but the fact that this mechanism and the bracket for house prices under the scheme are still unclear cast a benefit of doubt on the practicability of this scheme to first time house buyers.

Buying and financing a home takes a lot more than just paying the deposit and the loan, as there are still other miscellaneous fees which the house buyers may overlook. Therefore, if the threshold set for house prices is high under this scheme, it will be very difficult for the house buyers to maintain the payment in the future.

Average wage earners would have issues in coming up with the money upfront for the initial deposit given their limited disposable incomes. Cagamas that was introduced a few years ago should play a more prominent role in taking care of the deposit. RM200 million is too small a fund these days for any meaningful impact.

 

4. The RM1.4 billion will be directed to a particular ministry and it depends on how the ministry will utilise the money in improving the roads. It will be efficient in a way that it will lead to a more convenient pathway in accessing to the suburban townships. This will eventually trigger growth and development in that area.

1. There is no surprise in the housing sector because there is neither tightening nor liberalisation on guidelines such as changes in RPGT rate, re-introduction of DIBS or changes in stamp duty fee. In my opinion, it is good because current policies are deemed to be sufficient to maintain the stability of housing sector.

Having said that, improved tax reliefs for M40 (middle class) would be able to increase the disposable income of this segment. This means now the affordability of this group is enhanced and have a better chance of owning a house.

Nevertheless, one key element which needs more attention is house financing. There were no measures, such as DIBS or reduction in Statutory Reserve Requirement (SRR) for banks to improve liquidity in the market and to address on how we can make financing more affordable for all especially when property prices, just like most other goods and services are increasing in prices.

 

2. It is not enough because 5,000 out of 175,000 are merely 3% of the housing that are accessible to public transportation. This is the group which needs public transportation more than any other segment. 97% of the population will need to own a vehicle in order to travel. This leads to affordability issue again where this segment will require another financing to fund the vehicle in order to survive or to be competitive in the job market.

In addition, parking spaces are limited especially in urban areas and this has led to the ever increasing parking rates, –  for example the average price in some areas has gone up tremendously from RM2/hour in 2014 to RM3/hour in 2015 (excluding GST).

 

3. Deposit or down-payment to purchase a property is just one of the requirements to owning one. The more critical issue that we are facing today is that when banks are not lending to first time home buyers primarily due to affordability issue.

After the introduction of Responsible Lending Guidelines in 2012, another new segment has been classified in 2013, under this guideline, which is called vulnerable segment. This refers to Malaysians with monthly income below RM5,000 as defined by most banks.

Banks are applying more stringent Debt Service Ratio (DSR) cut off at below 60% on net income for those who fall under this category whereas others can be as high as 80% to 90%. This has further dampened the chances of securing a financing from the bank to purchase the first house for the younger population who generally earns less than RM5,000 per month.

 

4. Yes of course, especially those in the suburban areas will need more improvement on roads and accessibility to the city. However, upgrades of public transportation particularly the reach of LRT or MRT to the suburban areas is rather crucial.

Generally the house prices in suburban areas are more affordable but the need to own a vehicle to travel to town to work especially with the high fuel price due to the removal of government subsidy and the increased of toll rates in October 15 have reduced the average Malaysian’s affordability. There must be a plan to review the highway toll rates and fuel subsidy to appeal to the suburban areas.

1. I think the Budget was good from a macroeconomic perspective but it falls short on addressing the local housing needs. I think a lot more could have been done. Not only are more affordable houses needed, but the rate at which they are being produced needs to be ramped up drastically. We are already short of 1 million affordable homes.

More could have been done in terms of creative financing programs for first time home buyers. Many experts have pointed out that DIBS for first time home buyers are much needed. Statutory contributions imposed on developers could have been subsidised to bring down the cost of building houses.

The distinction between RPGT for Malaysians and foreigners should have been abolished. If Greater KL is to be a cosmopolitan city, then we need to do more to encourage foreign ownership. Foreigners could provide a much needed boost in the high end segment.

Malaysia has been rated as of the top destinations to retire and an attractive location for expatriates. It would make sense to encourage this trend through attractive home ownership schemes for foreigners.

 

2. Definitely not. As I highlighted earlier, we are already short of 1 million affordable homes. 175,000 affordable homes falls far short. The problem is exacerbated by the rate of implementation which, is seriously lagging. They government is looking at building 10,000 affordable homes next year. That only addresses 1% of the shortage.

5,000 PR1MA homes near LRT and monorail stations is a drop in an ocean. That sounds exaggerated but if you think about it, the shortage is growing. It is not being reduced neither is it being arrested. So, the current numbers don’t really change much.

 

3. No it is not enough. If we assume that the Gen-Y’s can afford a RM250,000 house, the deposit required will be RM25,000. And if you do the numbers, only 8,000 people can benefit. Again, this RM200 million allocations are far short if you take into account that we need to facilitate 1 million new affordable homes.

I think legitimizing creative financing programs like “no-money down” schemes to buy a house for first time home buyers could be a solution. Combined with government subsidies on statutory contributions for example, this could work. The mechanism for such schemes needs to be studied carefully to ensure that prices do not get inflated recklessly.

 

4. Yes, certainly! This is something we really need. Take a drive around upper-middle class neighbourhoods in the suburbs and you’ll notice the roads are horrible. People are paying millions for properties here but the roads are in poor condition. We need better roads in housing areas (without discrimination) and this allocation is a great start. I also believe proper roadworks and planning is vital on top of this allocation. Contractors who are fixing our roads do not follow proper procedure which results in uneven roads and potholes.

1. No, not at all. There must be a mechanism to reduce conversion premiums and development charges should be waived all together with statutory contributions such as SYABAS and Indah Water Consortium in order to reduce the cost to the developers and give them special tax incentives so that they can build more affordable homes. There must also be a fast track release of unsold Bumiputera units to reduce holding cost.

The concept of build-then-sell should be implemented. Look at the number of abandoned housing schemes that are still around and unresolved!

 

2. In my view, this is insufficient as l am doubtful as to the construction and delivery of these homes – as to where they are located. Are there public transportation and facilities where these homes are being built?

Apartments at Bukit Beruntung are being sold at less than RM150,000 but nobody wants to live there as it is just too far away. The further away the location of these homes, the lesser the demand.

 

3. This amount is just too small. Assuming RM200 million will be the 10% down payment, the total price of the properties that can be purchased will be RM2 billion. Assuming that the average house price is RM400,000, only 5000 units can be sheltered under this scheme –  which is way insufficient.

 

4. Definitely but may not be sufficient or enough as cost has gone up tremendously and there are still lots of unplugged leakages that have not been addressed.

The continued prohibition of DIBS is a very good thing but has been implemented too late as the cat has been let out of the bag. Property clubs or any form of it should be totally banned as this have encouraged speculations and pushed prices beyond the means of the average rakyat.

1. I personally feel that there is nothing very exciting about this year’s budget in relation to the housing issues. While it is good that there are schemes such as PR1MA, PPA1M and Rumah Mesra Rakyat, I would have preferred if there was an industry wide policy that will encourage all developers to focus on affordable housing.

 

2. I don’t have the exact figures, but my gut feeling is that this is not going to be enough, especially in the short term. I do expect that more units will be planned in next year’s Budget.

 

3. I am sure many will benefit from this financing scheme if implemented effectively as down payments are usually the biggest challenge for Gen-Ys. I touch on the implementation because the mechanism of this scheme is still unclear, so we will have to wait until the mechanism is clarified and finalized before we can have a better picture on its potential.

 

4. It will definitely help make suburban townships more appealing but it is only one of many factors that people would use to decide where they would want to stay. Other infrastructure developments for health care, education, necessities and even employment need to also be put in place to make suburban towns more appealing.

1. Mah Sing lauds the various initiatives in Budget 2016, which has several initiatives including reiteration of commitments to major infrastructure projects and various measures to create more affordable housing.

 

2. We are heartened to see the Government’s continuous commitment towards improving the nation’s public transport network. The government’s continued efforts to make the High Speed Rail a reality and their commitment to improve highways, MRT and LRT will directly benefit Mah Sing as our focus is in Greater KL which makes up 61% of our land bank in terms of gross development value.

84% of our planned residential launches are priced below RM1 million, with 71% priced below RM700,000 and this will again benefit the middle income group in the Klang Valley.

 

4.   Projects like the RM900 million proposed for Jalan Tun Razak traffic dispersal project to reduce Kuala Lumpur congestion will directly benefit our M City @ Jalan Ampang project, while RM1.4billion for improvement of roads around the country will make suburban townships like Southville City @ KL South, M Residence in Rawang more appealing to home buyers.

1. The government is obviously trying to address two pertinent issues – affordability and house ownership for first time house buyers.

For the former, various schemes were introduced to increase the supply. It is a commendable effort but I doubt the supply will be able to match the demand due to multiple factors. On the supply side, the private developers will not be able to carry the task when land, building and compliance costs are high. On the demand side, the shrinking Ringgit does not allow much room for the low and middle income groups to afford such big ticket investment.

The task as noted in the Budget was given to government agencies. The number of units will not be enough to meet the needs but it is still a good effort.

On the issue of house ownership, the government took into cognisance that first time house buyers must be given priority, hence the RM200 million fund to assist them. We have yet to know the criteria and the mechanism. The sum is certainly insufficient to satisfy the needs of the entire country.

Another way is simply to allow DIBS to be administered by the banks. Each bank will have to meet certain criteria before approving the loan to this group of borrowers. It will be more efficient and the quantum is to be set based on the banks’ capacity.

 

2. As stated above, it will not be able to but it is still a good effort.

 

3. It will not be sufficient. Mathematically, if the fund is to assist in the payment of the first 10% and we assume the average affordable home is priced at RM250,000, the fund will assist with the first 10%, as this will allow for only 8,000 units. Of course, at this stage we still do not know how it will work.

I would suggest that in a transitional period like this, house ownership needs not be a top priority. A housing relief can be given to the deserving groups deducted from their income tax, so that it will be less burdensome for them and it is for a targeted use. For those who are not paying income tax, a rent-and-buy scheme will be more appealing. A hybrid of both is also a workable strategy.

 

4. From the previous economic slowdown, we observed that funds spent on infrastructure are always a wealth creation mechanism.

One good example in JB is the opening of new highway to Gelang Patah. A major part of this area becomes Nusajaya that features various signature developments. From a new village, it becomes a striving town. Land values soared and many modern developments mushroomed here. Population increased too.

Firstly, it opens up new frontiers in the rural or suburbs making them more accessible. Since the land prices are relatively cheaper, development offering more affordable homes can be built. Secondly, road improvements or construction increase the value of the existing houses and lands. That by itself generates wealth and also attracts activities into these areas. Thirdly, the spill-off  effect from infrastructural development can create more job and business opportunities.

1. There should be more effort placed towards building affordable housing. For instance, incentives should be given to the private sector to turn pieces of land into affordable housing areas. With weak take-up rates and slower home loan approvals,
lee-ways for planning and conversion charges  should be given to private developers as an incentive for them to develop affordable housing units.

Also, the Budget 2016 did not stipulate the idea of affordable housing properly as it is very vague and not specific. There should be a stipulation on what is the price range for affordable housing to avoid it being taken advantage of by some developers who are looking to make extra profits by placing a higher price tag on a portion of the units.

 

2. It is insufficient mainly because the housing demand in Malaysia is insatiable. The allocated 175,000 homes is a laudable move, but it is not adequate in addressing the affordability issue. What is pressing, however, is that while there are plans to construct more affordable housing under PR1MA, the difficulties of first-time homebuyers to get financing are not addressed.

 

3. With the amount allocated, the scheme will only benefit a small percentage of aspiring house buyers. The scheme is a also a bit worrying as if a proper financing mechanism is not implemented, there will be hiccups in the scheme’s execution.  Careful consideration must be given to details such as what interest rates will be used and how will the deposit be paid to developers.  Instead of the RM200 million allocation, the government could give out a lump sum reprieve to youths who are eligible for affordable housing that fall within a certain income bracket.

 

4. It is a big relief as better transportation access leads to the development of residential, industrial and commercial sectors which creates additional wealth. This would especially be a boon for those staying in the outskirts especially those working in city centres.

 

This article is first published in iProperty.com Malaysia December 2015 Magazine. Get your latest copy in selected bookstores and newstands or go to www.iproperty.com.my/magazine to subscribe.

 

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